Eurozone debt woes may end up being a boon for securitization, as the European market turns increasingly to secured debt. Speakers on the “Implications of the European Sovereign Debt Crisis on Securitization” panel at the ASF2012 conference pointed to the high rates of issuance of European residential mortgage-backed securities throughout the Eurozone crisis, reflecting a healthy market demand, good performance on the underlying assets and the sector’s relatively stable spreads. “Investors seem more keen these days on securitization than on senior unsecured debt,” noted Ashley Kibblewhite, senior risk specialist at the Financial Services Authority, speaking about the European market.
The deleveraging European banks are expected to go through in the coming years may open up opportunities for investors on the secondary market as well. Vishwanath Tirupattur, managing director at Morgan Stanley, said banks are likely to offload the securitized products on their balance sheets using a ratings-based strategy, not one based on the assets’ performance. “That’s an ultimate value play in my mind,” Tirupattur said. “For people with the stomach for it, the opportunities from the Eurozone deleveraging are enormous.” He added European banks hold about $500 billion in legacy securitized products on their balance sheets.
Another plus for the securitization industry that may result from European tumult is that the sector might finally shake some of the lingering negative perceptions in Europe from the 2008 financial crisis. “All securitized products were painted with the same brush of negativity,” Tirupattur said. “From a policy-maker perspective, maybe they will say that it’s time to stop the stepchild treatment and look at performance.”
Robert Plehn, head of asset-backed solutions at Lloyds Banking Group, agreed that securitization’s image abroad might be able to escape the stigma of U.S. subprime RMBS. He added he also hoped European regulators would change their tune. “There’s a bit of regulatory schizophrenia going on,” Plehn said. “They’re essentially punishing securitization, but at the same time the [European Central Bank] is by far the biggest investor in the securitization market in Europe. Hopefully, attitudes will change as people get away from the headlines and actually take a look at the underlying assets.”