Europe Hopes that PCS “seal of approval” Will Reignite Investor Confidence in ABS Market

Last week’s formal announcement by the Association for Financial Markets in Europe or “AFME” that they had named board members to their Prime Collateralised Securities initiative or “PCS” is the Euromarket’s latest attempt to revive the moribund European asset-backed marketplace.  The central theme behind the initiative is to get issuers to live up to an array of industry standards for quality, transparency and simplicity, thereby establishing a widely recognized “gold standard” for abs investors to rely upon.

On November 14th the Association announced the new board members:

Francesco Papadia, former Director General for Market Operations at the European Central Bank

Anneli Peshkoff, former Director of Treasury at the European Investment Bank

Prof Jose Campa, former Secretary of State for the Economy in the Spanish Ministry of Economy and Finance

Gregor Gruber, Allianz Investment Management

Gaelle Philippe Viriot, Head of ABS at Axa Investment Managers

Richard Bartlett, RBS Head of Corporate Debt Capital Markets and Risk Solutions

Mirco Bianchi, UniCredit Head of Group Finance

Michaela Ulrici, NautaDuthil, Chair of the Board

Ian Bell, Head of the PCS Secretariat

It is expected that this board will award its first PCS designations before the end of the year. We found it interesting to note that the PCS will utilize the services of the Irish Stock Exchange, the True Sale Initiative and KPMG to “assist” the PCS board in reviewing and analyzing related documentation. We hate to say it but as time goes on, how much more reliable might the PCS designation be then what many held out for the work of the major rating agencies before the crisis. Only time will tell.

For now, we believe that the establishment of more standardization in such critical areas as collateral quality and disclosure can only be a good thing.  Not necessarily as convinced about the “structural simplicity” angle, as issuers and investors should have the discretion to form structures that suit their specific needs.  However, that does not mean that even some standardization around structures, particularly for those abs products that may look to trade in the secondary markets, would not produce a market benefit.  We just don’t think you can always judge relative quality based on varying levels of complexity.  Perhaps we are wrong about that but we will see.

For now it is good to know that the European Central Bank and other lead regulators in Europe are throwing their weight behind the initiative and if the only positive result that comes from this is a marginal increase in investor confidence, then the excercise would have been deemed a success.  Over time, expectations for what the designation means will likely rise, perhaps in the form of consistently improved trading volumes and of course pricing.

About markferraris
Managing Principal Orchard Street Partners LLC

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