Sunday, May 17, 2009

Disclosure move aims to revive ABS market

Posted in the Financial Times by Ralph Atkins and David Oakley:

The European Central Bank is pushing for an increase in the amount of information that has to be disclosed about asset-backed securities as part of efforts to revive a market that has collapsed since the start of the credit crisis in August 2007.

The ECB wants more details on these securities to be passed to ratings agencies, including data on the individual loans that back them. These are mainly mortgages, but also include credit card, corporate and car loans.

It hopes this will rejuvenate the European market by boosting confidence in the ratings, which in turn should encourage investors to buy the securities because a lack of transparency has been deterring them.

There have only been 11 asset-backed deals in Europe this year, worth €5bn ($7bn), including one by Porsche. In the first seven months of 2007, there were 241 deals in Europe, worth €199bn, according to Dealogic, the data provider.

Asset-backed-securities-graphicA revival in the securitisation markets would help the broader economy as it would provide banks with more money to lend.

However, analysts say the ECB should also push for full public disclosure of the loans that back these securities – as in the US – and not just to the ratings agencies. The US market has been hit too, but has seen more signs of recovery. This year there have been 130 deals, worth $80.6bn.

Hans Vrensen, head of European securitisation research at Barclays Capital, said: “Without better public disclosure, including loan-by-loan data, the European asset-backed securities markets will remain at a competitive disadvantage to the US markets.

“Improved transparency in the European markets is key to retaining existing as well as attracting new investors. Investors are more likely to buy asset-backed securities if they are able to fully analyse the risks they are taking on.”

The move by the ECB also reflects concerns about the risks it is bearing by accepting asset-backed securities as collateral when providing liquidity to eurozone banks.

Since the credit crisis started, eurozone banks have increasingly used asset backed securities as collateral to raise cash from the ECB as they could no longer sell on the assets in the market.

Last month the ECB revealed that asset-backed securities accounted for 28 per cent of the collateral put forward by banks in 2008 – up from 16 per cent in 2007.

On asset-backed securities used in its operations, the ECB says it is “working with rating agencies on the enhancement of the surveillance performed by rating agencies with a view to introducing loan-by-loan information”.

It adds in its monthly bulletin: “It is hoped by improving transparency in the surveillance process, market participants can regain confidence in the work performed by ratings agencies in the securitisation markets, thereby allowing their reactivation.”

No comments: