Market Participants Say Balance Is Key To Securitization Market

Market Participants Say Balance Is Key To Securitization Market
2009-10-26 Mike Scorelle

“The key is finding a balance between how much (securitization) is too much and how much is too little,” said Head of MBS, CMBS and ABS Strategy for RBS, Brian Lancaster at the second general session, The importance of Securitization in Rebuilding US Capital Markets” at ABS East today.

Paul Colonna, President and CIO, Fixed Income for GE Asset Management, added that finding a middle ground credit quality is as important noting that there has to be something between “originate everything and get it out the door” and the strict credit standards of the last six to nine months.

Panel moderator David Jacob, Executive Managing Director of Standard & Poor’s Structured Finance Ratings, said that “Lots of things have worked as they were supposed to,” citing that only four of the over 6,000 non-mortgage asset-backed bonds rated AAA by Standard & Poor’s since 1982 have defaulted.

Looking forward, Glenn Boyd, Head of US ABS/CMBS Strategy for Barclays Capital, said that 2010 could be a pivotal year for the ABS market noted that the “Feedback loops which caused so much pain on the way down could turn virtuous.”

Reed Auerbach, Partner at Bingham McCutchen, said that while we’ve seen a recovery in AAA rated bonds because of TALF, but to have a health securitization market there has to be a recovery in lower rated bonds as well.

Jacob added, “There was a subprime market before the crisis and there should be one going forward.”

As far as commercial real estate, which has been touted as “the next shoe to drop” in the financial crisis, Lancaster noted that there could potentially be a 50 percent drop in prices as compared to 28 to 30 during the RTC period, which will place incredible pressure on smaller banks which are holding these loans on their balance sheets.

When Jacob asked about the CDO market, Colonna stated the he doesn’t expect the appetite for CDOs to return anytime soon.