Global ABS 2017 Barcelona wrap-up

Over 3,000 securitisation market professionals attended the Global ABS 2017 conference at Barcelona between 6-8 June. A delegation of approximately 30 ASF members attended the conference. 

ASF speakers featured on the panels for Global RMBS, Whole Loan Sale and Women in Structured Finance. ASIC Chairman Greg Medcraft gave a key note speech. 

A key focus of the agenda was the recently announced European agreement between the European Parliament, Council and Commission on the “simple, transparent, standardised” framework for securitisation and its impact on the European ABS market. 

Key topics discussed included:

Simple, Transparent, Standardised securitisation

The European STS framework announced in Malta on 29 May addresses among other matters European requirements for: 

  • risk retention (5%)
  • regulatory due diligence required for investors
  • disclosure and transparency

Risk retention levels are to be reviewed at least every three years by the European Systemic Risk Board (ESRB).  

Importantly for Australia (and the UK and USA), the STS framework does not include any provision for non-European ABS to be recognised as STS compliant by the European authorities

Securitisations that qualify as STS will be subject to a risk weight floor of 10% while non-STS securitisations will be subject to a 15% risk weighting floor.

The final European agreement on securitisation set the hierarchy to determine risk weights to be 

  1. Internal rating based approach (IRBA)
  2. Supervisory approach (SA)
  3. External rating based approach (EBRA)

From an Australian perspective, the hierarchy adopted by Europe is in direct contrast to what APRA adopted. Europe has deliberately sought to reduce the reliance on external ratings from credit rating agencies in determining risk weights.  Apra has put the ERBA at the top of the Australian hierarchy.

Synthetic and ABCP securitisations can theoretically qualify for STS although it is unlikely any ABCP programs will be able to meet the STS requirements.

The next step is for the STS agreement to be defined through European Regulatory Technical Standards (RTS) which is expected to be completed in 2017/18 and for the framework to be implemented in 2019. Third country equivalency became a political topic and will be addressed as part of the Brexit negotiations between the UK and Europe. 

Solvency II

While conference attendees welcome some resolution of the new Securitisation Law, others pointed out the failure to reform Solvency II which governs ABS investments by insurance companies has created an inconsistent regulatory approach to financial institutions and insurance companies and has driven many insurance companies from the ABS market and invest directly into illiquid whole loan portfolios which enjoyed significantly better regulatory capital treatment.

Impact of QE

Investors noted the impact of the ECB’s asset purchasing program which has absorbed the majority of European ABS issuance and driven yields to low levels relative to other markets.  Quantitative easing (QE) in Europe has contributed to the shrinking of the European RMBS market. Panellists noted Nordic investors have stopped buying Dutch RMBS.  This dynamic adds to the relative value of Australia RMBS.

Rise of private equity and NPL securitisation

The rise of the role of private equity in securitisation and the securitisation of non-performing loans we significant topics covered. Private equity has been active in the securitisation of performing assets that have become non-core as the European banks have sought to strengthen their balances and focus on core business. Examples sighted included private equity’s role in the UK Government sale of the portfolios of Northern Rock and Bradford & Bingle (€12 billion).

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