Momentum for Fintech Sector Continues to Build

Bloomberg just ran an article summarizing the record pace for financing in the Fintech or Marketplace Lending sector.  Surely, there will continue to be some bumps in the road but this asset class continues to push ahead, seemingly no matter the headwinds.  Clearly, some smart people are betting on this asset class.

Here’s a link to the article….

Will EU Regulators Ever See the Forest Thru the Trees for Securitisation?

This week, Global Capital ran another good article about the seemingly never ending saga related to risk retention and other components of the EU’s Simple, Transparent and Standardised framework, also known as “STS”.  The article once again updates the market on the inability of regulators to get out of their own way when it comes to revitalizing the securitisation marketplace  in Europe.

We found one section to be particularly interesting.  Using the sub-title “What does the EU really want?”, we think the article asks the very basic question that few before have thought to ask.  So much time has been spent relying on big picture pronouncements by EU regulators and politicians about how important a healthy securitisation market is to the welfare of the EU capital markets, while very little time has been spent on evaluating what the regulators are actually doing, as a more accurate yardstick for measuring intentions.  Seven to eight years after the Credit Crisis should be more than enough time for pols and bureaucrats to understand structured finance, yet many of us continue to give them a pass and attribute the currently arcane EU rules to folks that simply do not understand securitisation.  Perhaps they understand perfectly well.  Maybe they really do not want a securitisation market for Europe.

Perhaps this is a harsh assessment but at some point, you would think that we have to rely more on their actions and less then on their words in assessing objectives and intentions.

One of the more recent “rationales” for holding up the process of improving the EU regulations is Brexit; the idea being that we need to better understand the impact of the British exit from the EU before making any substantive changes to the current rules.  That  argument sounds reasonable and safe; perhaps hard to challenge because does anyone really know how this will all shake out?  On the other hand, if the EU waits too long, could the UK eventually become the safe harbor for securitisation in the European theatre.  Certainly the UK regulators have a much more progressive track record, when it comes to creating a commercially attractive environment for innovation in the capital markets.  Perhaps the idea of the EU being left in the dust is not so far fetched.

Euro Securitisation Issuance on the Rise?

Good short summary recapping recent securitisation market activity on yesterday.

A couple of items that jumped out at us from the below chart:

  • Despite the anchor that the continued lack of clarity and commercialism in EU regulations for securitisation has created, there is a steady tend upward in the Euro market.  Nevertheless, it is hard not to notice just how far the market has to go to return to pre-crisis issuance levels.
  • On the other hand, US issuance levels seem headed to either matching or getting close to equaling 2007 issuance levels in 2017.

One is left wondering what the results might look like if EU regulators were to finalize a rationale approach to securitisation structures in their market.

European securitised transactions rise 26% in last quarter says AFME

Friday, 27 January 2017
European securitised transactions rise 26% in last quarter says AFME.  In the fourth quarter (Q4) 2016, €59bn of securitised product was issued in Europe1, an increase of 26.9% from Q3 2016 (€46.5bn) and a decrease of 19.0% from Q4 2015 (€72.8bn).  In the fourth quarter (Q4) 2016, €59bn of securitised product was issued in Europe1, an increase of 26.9% from Q3 2016 (€46.5bn) and a decrease of 19.0% from Q4 2015 (€72.8bn).  Some, €31.1bn was placed in Europe, accounting for over half (52.7%) of overall volume, compared to €21.5bn placed in Q3 (representing 46.2% of €46.5 bn) and €15.7bn placed in Q4 2015 (representing 21.6% of €72.8bn).

Pan European CLOs led placed totals followed by UK RMBS and UK Auto ABS. Pan European CLOs increased from €4.6bn in Q3  to €9.2bn in Q4 2016.  UK RMBS increased from €4.1bn in Q3 to €5.6bn in Q4, while UK Auto ABS increased from zero in Q3 to €2.9bn in Q4.

EU Securitisation Volume 2007-2016


Values in EUR BN      2007       2008      2009      2010      2011      2012      2013      2014      2015      2016

EU Placed                    419.2        105.5       24.7         89.8       88.9      87         75.9        78.2       83.2      96.4

EU Retained                175.7         713.2     399.3     288.1     287.9    170.9    104.8      138.8    133.2    141.2

EU Retention (%)       30%          87%       94%        76%       76%       66%      58%        64%       62%       65%

Total EU                       594.9        818.7     423.9      378        376.8    257.8    180.8      217        216.4     237.6

Total US                        2080.5    934.9     1385.3    1203.7   1056.6   1579.2  1515.1    1131.5   1617.5   1746.3

Source: AFME January 2017

New EU ABS Guidelines…. Talk About Tone Deaf!!

Just as the EU Securitisation Industry is about to limp into its annual industry gathering in Barcelona next week, along comes the EU Parliament to stomp on the few green shoots that are keeping this industry relevant in the EU capital markets!

You have to ask, what are the bureaucrats thinking?

Most glaring in the proposed regulations released by the EU Parliament’s Committee on Economic and Monetary Affairs released last week are the requirements for a 20% risk retention level and the possibility that all investors may need to be regulated entities (we assume that may mean banks, insurance companies, etc.).  Not that the other major elements of the proposal are positive.  It’s just that these two really stand out as having the potential to add gas to a fire that has the potential to burn down the entire securitisation house in EU zone.

For a very long time, we have suspected that the regulators and bureaucrats that have been tasked with revising the regulations for securitisation, simply do not understand the topic or the market.  Nothing we have seen makes that case better that this insane level of risk retention (where are the economics?) and a requirement for the securities to trade only among the very same institutions that are looking to move assets off their balance sheet.  The whole idea behind securitisation is to create an orderly market which will allow non-financial institutions to invest in financial assets.  A significant by-product is the ability for the experts at underwriting and structuring these assets and securities (banks and insurance companies) to continue to leverage their capacities and expertise and to make credit available to more borrowers (both institutions and consumers), all while providing a mechanism for them to properly balance their own portfolios (a good thing for both their own shareholders and creditors).

If these new proposals become law, you might as well shut the door on securitisation in the EU.  It will be too costly to issue and there will never be enough investors.  Even in the best of times, it was always costly to raise capital via securitisation.  Nevertheless, it was competitive enough to attract enough companies to utilize it as one of several capital formation tools available to them.  In some cases, it was the only viable tool available to some issuers.

Shutting out non-regulated institutions from investing in securitisation is about as self-defeating a proposal as you could dream up.  The global capital markets need more capital, not less!  Just ask any middle market company how hard it is to get credit.  Have a look at the rapid growth of marketplace lending platforms.  Do you think the timing for this growth over the past few years has been a coincidence?  Of course it is not!  Borrowers will look where they can and these platforms have begun filling a very important need; one that probably existed before the Credit Crisis but has been illuminated with at least a little help from the failure of the EU government and regulators to get the regulations right.

There are some rumors that the egregiousness of some of the proposed elements may be a political stunt (to be traded later for other elements).  However, we can’t see the logic in that hopeful theory.  Even if it is true, this is simply too important a topic, to be playing politics.

We are certain that this topic will dominate the discussion these next few days in Spain.

Maybe, we will all wake tomorrow to hear that the EU parliament was just kidding!

Euro CLO Market Breaks Out and This Time it Looks Sustainable

Several recent article’s about CLO market activity in the Eurozone all point to that long awaited rebound.  Several factors including a increasing level of comfort among issuers for regulatory constraints, growing enthusiasm among investors for yield opportunities and the continued strength of the US CLO market are all having a positive influence on the Euro market. produced a useful chart which shows this important uptick in Euro CLO activity over the summer of 2014.  It may take some time before we see a level of consistent activity which mirrors recent  US trends but the road ahead does look very good.