Market updates and sector developments

The ECB Governing Council has agreed a new roadmap for advancing the Capital Markets Union (CMU), with the aim of making full use of Europe’s capital markets to mobilise the private investment necessary to fund the green and digital transitions, and to enhance the EU’s productivity and competitiveness in a shifting geopolitical landscape. The statement places the growth of the securitisation market at the centre of its recommendations. In particular, the agreement highlights the need to increase private risk-sharing across the euro area.

“It is clear that the EU needs to move beyond broad statements and a piecemeal approach on CMU to a top-down approach, including concrete actions to foster capital market integration and development at the European level. True political will, ambition and follow-up will be critical,” the ECB statement says.

A specific priority is ensuring that the EU securitisation market can play a role in transferring risks away from banks to enable them to provide more financing to the real economy, while creating opportunities for capital markets investors. The statement says that this requires understanding the supply and demand factors relevant for the development of the securitisation market, including reviewing the prudential treatment of securitisation for banks and insurance companies, as well as reporting and due diligence requirements. It also suggests exploring whether public guarantees and further standardisation through pan-EU issuances could support targeted segments of securitisation, such as green securitisations to support the climate transition.

“While many of these initiatives will take time and the Capital Markets Union remains a long-term project, urgent and decisive action is now needed to make real progress in the integration and development of EU capital markets. There are no more low-hanging fruits to pick in this area and the EU must now address the most important and structural challenges,” the statement adds.

In other news…

Large changes in Nationwide, Virgin Money funding mix ‘unlikely’
Nationwide last week agreed to buy Virgin Money UK (Clydesdale Bank) in a £2.9bn deal, which would create the second-largest savings and mortgage provider in the UK. Both lenders have long-running prime RMBS programmes in place: respectively Silverstone (formed in 2008) and Lanark (2007). However, the integration of Virgin Money by Nationwide is expected to be a gradual multi-year process, with Virgin Money continuing to operate as a separate legal entity within the Nationwide group in the medium term – implying that the two programmes may continue to issue for some time still.

“Down the line, moving to just one RMBS programme wouldn’t matter for total RMBS issuance when all else is equal, but the combined entity may have either more or less wholesale funding needs, part of which comes from RMBS. That could then impact overall RMBS issuance,” observe Rabobank credit strategists.

They add: “However, on the face of it, both Nationwide and Virgin Money UK have very similar balance sheets in terms of the distribution between wholesale funding versus deposits as a share of total liabilities (excluding capital and reserves), namely around 76%-77%. This preliminary analysis thus suggests large changes in terms of funding mix as a result of the acquisition are unlikely.”

STS sustainability factors RTS published
The European Commission last week adopted a delegated regulation supplementing the EU Securitisation Regulation with regulatory technical standards (RTS) specifying the content, methodologies and presentation of disclosures relating to the principal adverse impacts (PAI) of assets funded by underlying exposures on sustainability factors. The RTS relate to STS non-ABCP traditional securitisation and for STS on-balance sheet securitisation.

Articles 22(4) and 26d(4) of the Securitisation Regulation provide originators of STS securitisations with the option to voluntarily disclose available information related to the PAI on sustainability factors of the assets financed by residential loans, auto loans or leases. Should originators choose to disclose, it derogates them from the requirement to disclose the available information related to the environmental performance of the assets financed by residential loans, auto loans or leases, according to Norton Rose Fulbright.

Meanwhile, Articles 22(6) and 26d(6) of the Securitisation Regulation empower the Commission to adopt a delegated act specifying the content, methodologies and presentation of this voluntary disclosure. The purpose of this delegated act is to ensure as much consistency as possible with Commission Delegated Regulation (EU) 2022/1288, developed in compliance with the mandate given to the European Supervisory Authorities in the SFDR, which is not directly applicable to securitisations.

The Commission Delegated Regulation remains under review by the European Parliament and the Council for three months, before being published in the Official Journal of the EU. It will then enter into force on the twentieth day following its publication.

Corinne Smith