Healthly Optimism Coming Out of ASF Conference

 This past week found 5,000 beleaguered industry professionals returning to Las Vegas for the first time since the credit crisis for their annual conference.  The decision by the American Securitization Forum to return to Las Vegas was, in its own right, a strong signal to both issuers and investors that the industry is ready to get back to work.

Clearly, there is still so much lack of clarity in the critical area of regulation both in the US and the EU markets but we walked away with the distinct impression that folks are tired of waiting for the regulators to figure things out and they are taking faith that the integrity of their structures and their investing decisions in these critical investment markets will ultimately stand the test of time and regulation.

Some of that confidence seems to be spawned from  the steady trickle of good or better news from US and EU governing and regulatory bodies about how Dodd Frank and other key “crisis era” legislation may be tweaked to restore investor confidence and reasonable economics for issuers.  In other cases, it is clear that investors are looking for better yield opportunities than they can find in other markets and there is growing sentiment that securitization may represent the best opportunities for yield while managing risk.  This last part may sound counterintuitive to casual followers of the industry over the past few years but we view it as a fact that many within the industry have always known.

We observed that many bankers and advisors are scratching away at the edges of the industry trying to revive structures in more of the emerging asset classes, where they have to work harder and longer but the level of commitment is admirable and confidence levels are growing.

Excellent move by Tom Deutsch and his colleagues at ASF to return to Las Vegas; perhaps just the tonic the industry needed after 5 years on the ropes.

EU May Allow Banks to Count ABS Towards Liquidity Rules

Potentially important news out of Denmark this past week as a draft of a new law which  would allow European Banks to utilize ABS holdings to meet new liquidity rules will be considered by the European Union in the coming weeks.

The draft which was apparently first released on January 9th by Denmark, which currently holds the EU Presidency, would require the European Banking Authority to allow member banks to count “asset-backed securities of  high credit quality and liquidity” against the “liquidity coverage ratio” as prescribed by Basel III.  Asset-backed securities are currently not eligible under the Basel III rules.

No matter how you slice it, this has the potential to be a very significant development; one that could have a significant impact on the return of  European banks as investors in Euro-originated ABS as well as US and Asian originated ABS. 

While the end result may only open the door to very safe and perhaps very “plain vanilla” structures, nevertheless,  in a yield hungry investor community, the opening of the door to ABS for European bank balance sheets has many, many positive implications.  

In order for the proposal to become law it will have to be approved by each of the governments in the 27 nation European Union and the European Parliament.  The sooner, the better.