Draghi’s ABS Plans Signal Clash With Regulators: Credit Markets
2014-06-06 10:54:10.716 GMT
(To be sent this column daily, click SALT CMW. For credit-
market columns, click on TOP CM.)
By Alastair Marsh
June 6 (Bloomberg) -- Mario Draghi is on a collision course
with regulators as he seeks to revive Europe’s asset-backed debt
market to boost lending to businesses.
The European Central Bank president said yesterday
regulators are holding back the market he wants to use to spur
economic growth. Policy makers are frustrated by the Basel
Committee on Banking Supervision’s demands that investors
increase the capital they hold to absorb losses on the debt.
“We are working on the ABS, but you know that there are
also other actors,” Draghi said at a press conference in
Frankfurt. “There has to be a revisitation of the regulation
that had been introduced in the past few years about ABS to
eliminate some of the undue discriminations.”
Europe’s $2 trillion ABS market contracted 32 percent since
2009 as regulators cracked down on the debt they blamed for
deepening the financial crisis. The securities package
individual loans such as mortgages, auto credit or credit-card
debt and sell them on to investors, allowing banks to share the
risk of default and encouraging them to offer more credit.
Regulators have been wary of the securities as the
complicated structure of some products can obscure the true
riskiness of the underlying assets. That happened with
securities backed by the U.S. sub-prime mortgage market, which
imploded in 2007.
ECB, BOE
Lenders from London-based Barclays Plc to Deutsche Bank AG
in Frankfurt say the rules are becoming so onerous they may shun
some of the debt, prompting the ECB to join with the Bank of
England to seek to ensure the market isn’t unnecessarily
impaired.
The central banks outlined plans last week for so-called
qualifying securitizations that “would be simpler, more
structurally robust and transparent,” so that non-bank
investors could model risks more easily.
“Support from European central banks is very positive but
the current regulatory proposals on capital charges are not
conducive to growth,” Francisco Paez, who oversees $20 billion
of structured finance securities at New York-based MetLife Inc.,
said in a telephone interview on June 3. “This dissonance needs
to be addressed so that when the rules are finalized we have
capital charges for ABS that are reasonable.”
The ECB is promoting bonds backed by loans to small- and
medium-sized enterprises in a bid to increase funding to the
businesses that employ about 70 percent of the European Union’s
private-sector workers.
‘Simple and Transparent’
Draghi said the plan to revive the market includes buying
“simple and transparent” notes that are backed by non-
financial private sector debt. That may prove to be a challenge,
according to New York-based Citigroup Inc., because there are
only about 13 billion euros ($18 billion) of public bonds
outstanding.
“They may well succeed in reviving the market, but only in
encouraging exactly the sort of credit-intensive growth and
associated bubbles in asset prices which got us into trouble in
the first place,” Citigroup analysts led by Matt King said in a
note to clients yesterday before Draghi spoke.
Regulation will be the main talking point when investors,
issuers and traders gather for the Global ABS 2014 conference in
Barcelona next week. Yves Mersch, a member of the ECB’s
executive board, who said in April there is more room to
maneuver for granting high-quality securitizations favorable
treatment, will deliver the keynote speech on June 11.
Busiest Week
Asset-backed debt sales are heading for their busiest week
in three years in Europe, with the banking unit of U.K. grocer
Tesco Plc and Banco Santander SA among issuers offering almost 4
billion euros of the debt, according to Utrecht, Netherlands-
based Rabobank. The ECB’s plan to purchase ABS may not be enough
to sustain this pace of new issuance, according to UBS AG.
“With respect to jumpstarting primary issuance, we believe
lack of demand from debtors and technical hurdles for
originators and investors are not easy to look past,” UBS
analysts led by Matthew Mish in New York said in a note to
clients today.
European ABS sales fell to about 74 billion euros in Europe
last year from 325 billion euros in 2007, an almost 80 percent
decline, according to JPMorgan Chase & Co.
In the U.S., the Federal Reserve’s efforts to stimulate
securitization, including making loans to finance bond
purchases, fueled confidence in the market and held issuance
above $140 billion at the height of the crisis in 2008 and 2009,
when sales in Europe were less than $15 billion. Banks in the
U.S. sold $174 billion of asset-backed bonds last year.
“Regulation continues to play a key role in shaping access
to the ABS market and constraints remain which will take time to
overcome,” said Neal Shah, a London-based managing director for
structured finance at Moody’s Investors Service.
For Related News and Information:
Draghi ABS Plan Seen Helping Banks Not Business: Credit Markets
NSN N4XVSY6JIJUZ <GO>
Toxic Debt Condemned in Crisis Heralded as Europe’s Savior (2)
NSN N3VFG76JIJVE <GO>
Draghi’s Hunt for QE Assets Leaves ECB Scouring Bare Market (2)
NSN N3RGAQ6KLVRS <GO>
European ABS News: STNI EUROPEABS <GO>
European CMBS News: STNI EUROCMBS <GO>
Covered Bond News: NI Covered <GO>
To contact the reporter on this story:
Alastair Marsh in London at +44-20-3525-8767 or
amarsh25@bloomberg.net
To contact the editors responsible for this story:
Shelley Smith at +44-20-3525-2020 or
ssmith118@bloomberg.net
Michael Shanahan
2014-06-06 10:54:10.716 GMT
(To be sent this column daily, click SALT CMW. For credit-
market columns, click on TOP CM.)
By Alastair Marsh
June 6 (Bloomberg) -- Mario Draghi is on a collision course
with regulators as he seeks to revive Europe’s asset-backed debt
market to boost lending to businesses.
The European Central Bank president said yesterday
regulators are holding back the market he wants to use to spur
economic growth. Policy makers are frustrated by the Basel
Committee on Banking Supervision’s demands that investors
increase the capital they hold to absorb losses on the debt.
“We are working on the ABS, but you know that there are
also other actors,” Draghi said at a press conference in
Frankfurt. “There has to be a revisitation of the regulation
that had been introduced in the past few years about ABS to
eliminate some of the undue discriminations.”
Europe’s $2 trillion ABS market contracted 32 percent since
2009 as regulators cracked down on the debt they blamed for
deepening the financial crisis. The securities package
individual loans such as mortgages, auto credit or credit-card
debt and sell them on to investors, allowing banks to share the
risk of default and encouraging them to offer more credit.
Regulators have been wary of the securities as the
complicated structure of some products can obscure the true
riskiness of the underlying assets. That happened with
securities backed by the U.S. sub-prime mortgage market, which
imploded in 2007.
ECB, BOE
Lenders from London-based Barclays Plc to Deutsche Bank AG
in Frankfurt say the rules are becoming so onerous they may shun
some of the debt, prompting the ECB to join with the Bank of
England to seek to ensure the market isn’t unnecessarily
impaired.
The central banks outlined plans last week for so-called
qualifying securitizations that “would be simpler, more
structurally robust and transparent,” so that non-bank
investors could model risks more easily.
“Support from European central banks is very positive but
the current regulatory proposals on capital charges are not
conducive to growth,” Francisco Paez, who oversees $20 billion
of structured finance securities at New York-based MetLife Inc.,
said in a telephone interview on June 3. “This dissonance needs
to be addressed so that when the rules are finalized we have
capital charges for ABS that are reasonable.”
The ECB is promoting bonds backed by loans to small- and
medium-sized enterprises in a bid to increase funding to the
businesses that employ about 70 percent of the European Union’s
private-sector workers.
‘Simple and Transparent’
Draghi said the plan to revive the market includes buying
“simple and transparent” notes that are backed by non-
financial private sector debt. That may prove to be a challenge,
according to New York-based Citigroup Inc., because there are
only about 13 billion euros ($18 billion) of public bonds
outstanding.
“They may well succeed in reviving the market, but only in
encouraging exactly the sort of credit-intensive growth and
associated bubbles in asset prices which got us into trouble in
the first place,” Citigroup analysts led by Matt King said in a
note to clients yesterday before Draghi spoke.
Regulation will be the main talking point when investors,
issuers and traders gather for the Global ABS 2014 conference in
Barcelona next week. Yves Mersch, a member of the ECB’s
executive board, who said in April there is more room to
maneuver for granting high-quality securitizations favorable
treatment, will deliver the keynote speech on June 11.
Busiest Week
Asset-backed debt sales are heading for their busiest week
in three years in Europe, with the banking unit of U.K. grocer
Tesco Plc and Banco Santander SA among issuers offering almost 4
billion euros of the debt, according to Utrecht, Netherlands-
based Rabobank. The ECB’s plan to purchase ABS may not be enough
to sustain this pace of new issuance, according to UBS AG.
“With respect to jumpstarting primary issuance, we believe
lack of demand from debtors and technical hurdles for
originators and investors are not easy to look past,” UBS
analysts led by Matthew Mish in New York said in a note to
clients today.
European ABS sales fell to about 74 billion euros in Europe
last year from 325 billion euros in 2007, an almost 80 percent
decline, according to JPMorgan Chase & Co.
In the U.S., the Federal Reserve’s efforts to stimulate
securitization, including making loans to finance bond
purchases, fueled confidence in the market and held issuance
above $140 billion at the height of the crisis in 2008 and 2009,
when sales in Europe were less than $15 billion. Banks in the
U.S. sold $174 billion of asset-backed bonds last year.
“Regulation continues to play a key role in shaping access
to the ABS market and constraints remain which will take time to
overcome,” said Neal Shah, a London-based managing director for
structured finance at Moody’s Investors Service.
For Related News and Information:
Draghi ABS Plan Seen Helping Banks Not Business: Credit Markets
NSN N4XVSY6JIJUZ <GO>
Toxic Debt Condemned in Crisis Heralded as Europe’s Savior (2)
NSN N3VFG76JIJVE <GO>
Draghi’s Hunt for QE Assets Leaves ECB Scouring Bare Market (2)
NSN N3RGAQ6KLVRS <GO>
European ABS News: STNI EUROPEABS <GO>
European CMBS News: STNI EUROCMBS <GO>
Covered Bond News: NI Covered <GO>
To contact the reporter on this story:
Alastair Marsh in London at +44-20-3525-8767 or
amarsh25@bloomberg.net
To contact the editors responsible for this story:
Shelley Smith at +44-20-3525-2020 or
ssmith118@bloomberg.net
Michael Shanahan