Financial thoughts

Bankers, investors and issuers at the asset-backed securities industry’s biggest event on Tuesday will again be debating how to revive the market, uncosseted by the top chefs and pop star entertainers of prior years.

With the market comatose since the start of the credit crisis, fewer people will be attending, and lavish parties are off the agenda.

The two-day Global ABS conference moves to London from Cannes last year and Barcelona in 2007, when the subprime crisis began. The event will host 2,500 people, 500 fewer than last year and 1,000 down on the year before.

“The mood in Cannes was gloomy, but it was too late to cancel anything. There will certainly be a lot less entertainment this time round,” said one banker who declined to be named.

“But I think we’ll see more interesting content and discussions … It’s all about how the market can be kick-started again,” the banker said.

The value of ABS — instruments used by banks to offload risk on mortgages or consumer loans from their balance sheets — has plummeted during the credit crunch.

Excluding deals retained on bank balance sheets for collateral purposes, mortgage-backed ABS issuance has evaporated to just $1.5 billion in 2009 from $18 billion in 2008 and $373 billion in 2007, Thomson Reuters data show.

Since the last annual conference, the financial landscape has changed dramatically with the bankruptcy of Lehman Brothers and other major bank bailouts same day payday loans.

Major buyers of ABS in the boom years, such as structured investment vehicles (SIVs), conduits and hedge funds, have also been driven out of the market by the subprime crisis.

“The market was still in shock last year,” said Allen Twyning, a credit analyst at Aviva Investors. “What is going to be interesting now is whether issuance will come back and how. And who is going to buy it?”

SEEING VALUE

Some funds are becoming more active in the market.

Fund manager Henderson Group said last week it was poised to launch its first ABS fund to take advantage of beaten-down prices in the sector, which some experts say do not reflect underlying credit risk.

Abbey National’s Holmes Trust, considered as a good proxy for the market, with 30 to 40 billion pounds’ ($46-$62 billion) worth of mortgage assets, has seen only 1 to 2 percent of arrears for example, one banker said.

“That’s nothing. If you’re a triple-A investor, then arrears would have to rise to about 15 percent before it starts to hurt the triple-A slice,” the banker said. 

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