SocGen's Oudea Sees ABS Volumes Declining in Europe Over 3 Years

The European Union’s drive to revive the asset-backed securities market by introducing a new category of products eligible for preferential capital treatment probably won’t deliver immediate results, according to Frederic Oudea, chief executive officer of Societe Generale SA.

“I’m not convinced that we can expect a strong take-off of securitization with the current proposal,” Oudea said on Oct. 13 in Brussels. “I’m even tempted to think the opposite -- that in the beginning some securities will disappear, and it will take time for new ones to kick off. I’m actually expecting a decline in the volume of securitization over the next two to three years.”

Jonathan Hill, the EU’s financial-services chief, presented a proposal on Sept. 30 that seeks to boost the ABS market by creating a new class of “simple, transparent and standardized” products eligible for capital relief. By bundling assets and selling them on as securities, banks can free up balance-sheet capacity to offer new loans to companies, which “support job creation and a return to sustainable growth,” according to the plan.

“We need to take more time to digest these proposals, but I am not particularly optimistic for the next two to three years with what is suggested,” Oudea said.

The Basel Committee on Banking Supervision increased capital requirements on asset-backed securities in December from pre-crisis levels as part of a revised securitization framework that comes into effect in 2018. In July, the regulator published criteria to help investors assess the risk of asset-backed securities, holding out the promise of easing capital requirements on qualifying products.

“There are new criteria that will be applied by Basel that will fundamentally impact a certain number of existing securities that have worked very well, but are going to be more problematic,” Oudea said. “And then there will be a new class of securitization that is proposed, with new criteria, and the problem is at what pace these new securities will take place. I am afraid that with the complexity of what is proposed, it will take time to take off.”