I'm affraid I can't agree with you on those views on European securitization.
First of all, even though the European market is younger and more immature than the US, we too have evolved during the past years. It is true that most of our securitizations are still RMBS but this is a direct consequence of the dominance of UK in the European market for securitized products. Whereas securitization is the only way to fund mortgages through the capital markets in the UK, the rest of Europe has well functioning covered bond markets, e.g. Phandbriefe, Obligationes Foncieres, Cedulas, Danish mortgage bonds etc, in which mortgages are funded. When counting out UK RMBS issues, you will see the real trend in European securitization, i.e. the ever increasing number of credit card receivables, auto loans, consumer loans etc. backing ABS transactions.
Second, mass default of ABSs, especially MBSs, is highly unlikely due to the extensive credit enhancements (sub-ordinate structures, oc, etc) required by investors (and rating agencies). Subordinated tranches will probably take some hits, but that doesn't mean that SPVs will default.
Third, while investors may shy away from more speculative ABS transactions, they also shy away from shares. Downturns in the economy are golden periods for bonds! After all, the real investors (pension funds, insurance companies and the likes) sit on an enormous amount of capital that they have to invest. There is no option of putting the money under the matress! They have to invest it! And what better than bonds! Now, if there is anything that seems almost as safe as govis, but with a higher yield, investors will take it. Hence, MBS transactions will be highly appreciated in the market.
However, I do agree in part: some investors might be reluctant to continue investing in ABS because of the crap some investment banks pushed out on the market in the mid 90's, resulting in impressive losses for their customers.
Posted on Apr 20, 2003, 3:09 PM from IP address 62.78.187.154