News Column

Moody's: Resurgence of ABS and RMBS Markets:

June 9, 2014

Moody's welcomes the support shown for the

structured finance industry as an integral funding source for the real

economy in the recent discussion paper on European securitisation

prepared jointly by the Bank of England and the European Central Bank .

Moody's initial response to this discussion paper ('the paper'), which

was released on May 30, is titled "The Revival of the European

Securitisation Market, Overcoming the Barriers" and can be accessed via

the link provided at the end of this press release.

The paper concluded that an increase in the issuance of European

securitisation will provide a long-term funding source for small medium

enterprises (SMEs) and consumer borrowing which, in turn, should

stimulate business investment and household consumption and hence

economic growth. SMEs in particular will benefit because of the

difficulty they have in directly accessing the capital markets; they

depend heavily on banks for funding.

Moody's highlights however that issuance levels remain muted as the

market digests the various forces at play, many of which are limiting the

participation of investors and issuers. The market has yet to replace the

exit of a large segment of once-active investors. The anticipated

regulatory cost imposed on remaining large European buyers also

diminishes the economic attractiveness of the structured finance products.

The slowly recovering macro-economic situation across the euro area is

affecting fundamental loan origination. This factor combined with the

continuing balance sheet evolution of many European banks, limits the

volume of underlying assets. Sellers may also be inhibited by regulatory

uncertainty which could increase the cost of issuance.

In a separate report Moody's notes that despite the 2009 global downturn

and the recession affecting many European countries, European

securitisation deals displayed resilience throughout the financial crisis

and performed well, a trend which is set to continue in 2014. None of

the senior notes in EMEA asset-backed securities (ABS) or residential

mortgage-backed securities (RMBS) that Moody's rated Aaa (sf) incurred,

or are expected to incur, principal losses.

The report titled "European ABS and RMBS: Historical Resilience Will

Continue Beyond 2014" is now available on Moody's

subscribers can access this report via the link provided at the end of

this press release.

Moody's notes that overall, less than a third of a percent of all of the

EMEA ABS and RMBS notes rated by the rating agency have realised a

principal loss, and only 2% are still likely to incur a loss during their

lifetime. These relatively few incidences exclusively affected

subordinated EMEA ABS/RMBS notes and stemmed primarily from

underperforming collateral or exposure to counterparty risk during the


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Source: EMBIN (Emerging Markets Business Information News)