Could ABN Amro Slip Back into Securitization

Rising like a phoenix out of the ashes of the credit market’s 2008 collapse, word comes out of the Netherlands this week that ABN Amro may be getting off the mat for another strong run at the capital markets.  Could this be a precursor for other firms either assumed dead or on the respirator such as Royal Bank of Scotland or AIG (all beneficiaries of unprecedented national government assistance)  adding some competition and some spice to a revival of global structured finance?

You will recall that following the disastrous three-way breakup of ABN by RBS, Fortis and Banco Santander in 2007, the remnants of ABN’s business were rescued by the Dutch Government in 2008 via a Euro24 Billion infusion and the nationalization of the company.

Now comes word that the Dutch Government is hopeful that they will be able to recoup all or more than their investment through an IPO process of a resurrected ABN Amro, as early as 2014.

Chief cheerleader for the revived ABN is their new CEO, Gerrit Zalm, who was interviewed by the Financial Times earlier this week.  Zalm made a number of interesting comments about expansion plans for ABN in several product areas including, commercial, merchant and private banking business lines.

One comment that we found to be particularly interesting was Zalm’s indication that the bank is interested in buying up assets of “capital-stretched” banks in the Euro-zone and taking over the management of portfolios.  Could this mean what we think it does?

Does ABN expect to look for buying opportunities for distressed portfolios?  Certainly on paper, their clean balance sheet (all within the new ratio guidelines) make them a natural buyer, as they do have capacity.  What does one expect they will do with those portfolios?  Certainly they might sell them to their bank customers but we think it is much more likely that they will re-package those assets and sell them to institutional investors in the secondary market.

We’re not suggesting that ABN and others might light the match to ignite the return of a CDO market.  However, we don’t think it would be stretch to see ABN provide the market with a very valuable valve to release pressure in the credit markets and to help to once again align the distribution of structured product with investor demand; something which the so-called “healthy” banks have limited capacity for at the current time.

Talk about “weird justice”.  We may very well witness some of the baddest cowboys on the ranch donning white hats and riding to the rescue of the securitization markets.  Wouldn’t that be ironic!

ABS East 2011 a Bit of a Snooze

Based on some fairly extensive (if informal) feedback we were able to gather, it seems that the ABS East Conference was about as dull as the three days of rainy weather that the attendees endured in Miami last week.

IMN’s annual event, which has become a traditionally good opportunity for market participants to recap the past year and begin to lay some groundwork for next year’s activity, was probably not what most folks who dodged the raindrops were hoping for.  Sure, it looks like there was some good news about recent market activity in some traditional asset classes, such as auto securitizations, and there was a fair number of market participants that have benefited from a relatively strong resurgence of commercial mortgage-backed issuance. 

However, too many folks were talking “busy” with really not much to show for it. 

On the positive side, it was apparent to several folks that attended that many of the service providers, including the trustees, law firms, technology firms, data providers and SPV management providers are gearing up for more activity next year.  Several noted good signals coming from both new and historical issuer and banking clients about new programs.

No doubt that the clouds over South Florida last week were a great metaphor for the continuing lack of clarity from the US regulators about the final impact of Dodd-Frank and other recent legislation on the structured markets.  Nevertheless, we believe that we may be seeing some energy building for the industry as we head into next year.

UK Regulator: “Securitisation would help small and medium-sized companies”

Regulators around the world continue to be coming to their senses about the benefits (actually the necessity) of securitisation in the global credit markets.  Now it seems that some of the politicians are wading into these formerly forbidden waters.

This past week found the British Chancellor George Osborne touting a new UK Government sponsored loan guarantee program for small and medium-sized enterprises (“SME’s).  He suggested that the program would be aimed at enhancing access to credit for the important middle market and that the features of the program could look similar to National Loan Guarantee Scheme which was first proposed by the Cameron Government in 2008.  That program would have established a government guarantee of up to 75% of principal for loans covered by the program.  Sounds a lot like “financial engineering” to us!

A Reuters article this week contained one telling quote attributed to Kevin Ingram, a partner in the capital markets practice at Clifford Chance.  Mr Ingram said “Securitisation has always been a very useful, if not fundamental, tool to recycle capital in the economy”.

How true and not only as it applies to small and medium-sized companies.  The same principle or “need to recycle capital” is the driving mechanism behind growth and prosperity for all originators of financial and commercial assets.  That principle applies just as evenly to JP Morgan, Barclays and Deutsche Bank, as it does to a small consumer electronics company or a community bank.

As we have said before, it is time to take the shackles off the structured finance markets.  Monitor the hell out of it if you want but regulators and law makers must stop blaming the financial engineering for bad behavior.  Securitisation IS the answer!