Draghi’s Asset-Backed Debt Revival Nowhere to Be Seen in JanuaryAlastair Marsh
The market for asset-backed securities in Europe isn’t showing the revival envisaged by Mario Draghi when he started his asset-purchase program.
Sales of the notes totaled 1.2 billion euros ($1.4 billion) in January, the least for any month since August 2011, according to JPMorgan Chase & Co. Two bonds secured by commercial real estate loans in Italy and securities backed by German auto loans made up the month’s sales, the data show.
The European Central Bank president is seeking to breathe life into the ABS market, which contracted more than 40 percent since 2010, because the securities allow banks to transfer risk to investors and encourage lenders to offer more credit to companies. The central bank bought 2.3 billion euros of asset-backed notes since November as part of the purchase program that Draghi said this month will be expanded to include government bonds.
“January was a slow month with the quantitative easing discussions and news around Greece and other macro events providing distractions,” said Gareth Davies, the London-based head of European ABS research at JPMorgan Chase & Co. “I wouldn’t extrapolate from this that the whole year will be as bad because originators could be waiting to come later when a QE rally makes it cheaper.”
Italian lender Banca IMI SpA and U.K. asset manager Cairn Capital Ltd. arranged 203 million euros of bonds last week backed by a loan refinancing a building on Milan’s Via Montenapoleone, a shopping street in the city’s fashion district. Bank of America Corp. also sold a 286.4 million-euro securitization of three commercial real estate loans made to private equity firms including Blackstone Group LP and Cerberus Capital Management LP that were secured by Italian properties.
January is usually a slower month for ABS sales because deals can take at least four months to put together and banks tend to target issuance for the end of the first half or the end of the second half of the year, according to Jean David Cirotteau, an analyst at Societe Generale SA in Paris. This is because ABS deals can allow lenders to move assets off their balance sheets or improve liquidity ratios, he said.
Sales of ABS, which bundle individual loans such as mortgages, auto credit and credit-card debt into tradable bonds, totaled 81 billion euros in Europe in 2014, slightly more than the 75 billion-euro average for the previous four years, JPMorgan data show.
Credit Suisse Group AG, Morgan Stanley and Barclays Plc are among lenders that forecast the ECB’s participation in the market will encourage banks and increase in new deals in 2015. Credit Suisse estimates 115 billion euros of issuance this year, while Morgan Stanley and Barclays are forecasting 100 billion euros.