Despite the ABCP market initially getting help from the European Central Bank (ECB), program sponsors across the pond are still struggling with having a smaller market and a limited investor base.
This is based on comments made at a panel called Examining the Fate of the European ABCP & SIV Market at Information Management Network‘s Global ABS 2010 conference held in London this week.
Reiner Ulrich, head of ABCP conduit management at Unicredit Group, said that the ECB’s involvement was helpful although he said that, “we could have gone on playing but they didn’t.”
Last year Unicredit’s euro-denominated ABCP conduit named Salome Funding got the green light from the ECB to begin using its repo facility.
Ulrich said there has to be a recognition of the difference in ABCP assets, which are not “toxic”, adding that the sector plays a role in financing the real-time economy.
Since the financial crisis happened, the market has indeed gotten smaller, with consolidation of ABCP programs becoming a theme in the European market.
“There have been new deals,” said John Spedding, managing director at BNY Mellon – QSR Management, although the market has been slow. “There are signs of investor demand in the product but not a lot,” he added.
Panelists noted that non-money funds are starting to come back into the sector, but with fairly small tickets.
In terms of asset types, the panel’s consensus was that the theme remains back to basics as it has become very difficult to get highly structured transactions done.
“The activity is very client-driven,” said Amador Malnero, global head of structured securitized finance at ING Commercial Banking. He added that the market currently comprises mostly shorter asset classes such as credit cards and auto loans.
“There’s a limit to the capacity of the market for each bank,” said Tristram Sutton, global conduits chief operating officer at Royal Bank of Scotland. Given the limitation, the market has been relationship driven, he said, and one that does not feed off ABCP issuance.
Panelists said that there needs to be a concerted effort to make conduits easier to understand and transparent. By having these elements in addition to focusing on mainstream and traditional assets classes, deal flow might eventually increase.
These might also bring in more European participation, as having only U.S. investors “is dangerous for Europe,” a panelist said.