The Global ABS conference that took place last week in Brussels is supposed to be the annual gathering of all market players where a lot of the pipeline gets agreed. Apparently this year the focus was not on agreeing deals but on debating regulatory reforms.
Indeed, the European ABS market is under threat from the Solvency II and Basel III regulations. The former because, by 2014, it would in essence make insurance companies divest from ABS securities and furthermore not invest any more in ABS that will incur 10 times the amount of capital charge that covered bond holdings would. The later because eligibility of ABS under Basel III liquidity coverage ratio (LCR) is uncertain, therefore pushing buyers away from securitisation, and into other assets such as covered bonds.
Fortunately these regulations are not final, many working groups together with the Association for Financial Markets in Europe (AFME) and the European Commission are trying to agree on something that will not threaten the industry further.
In fact, some segments of the market, such as UK RMBS, Credit Cards or CMBS but also German Autos and Dutch RMBS are still picking up some interest. We are also seeing some new products arriving on the market such as the first senior but also junior tranches of a Credit Suisse Credit Cards public issuance.
We certainly hope that regulators will contribute to sheding some light at the end of the tunnel, as we see securitisation as a key element to finance the real economy. In the meantime, we will analyse alternative ways of reviving this industry. More in an upcoming report..