Morrison & Foerster partners Peter Green and Jeremy Jennings-Mares discussed at a seminar the firm hosted on 23 September the outlook for, and investor confidence in, the European securitisation market.

Green began the discussion by outlining recent activity and signs of recovery in the market. "There are signs that the market is slowly recovering in some areas and, for the UK and Europe in particular, activity is picking up in the RMBS sphere."

He went on to say that last week the market saw RBS issue a large RMBS deal (SCI passim), while Lloyds and Santander had also undertaken RMBS earlier in the year. In addition to the banks highlighted by Green, Barclays is rumoured to be prepping a large transaction in the coming weeks.

However, Green noted, the RMBS market is still struggling to reach its pre-crisis high, only achieving 40% of its previous volume and with the overall ABS market significantly below that level.

Jennings-Mares also commented on RMBS marking its presence in the market, particularly with UK and Dutch deals. But he noted that supply and demand in the auto ABS sector still appears to be imbalanced. This is due, he suggested, to banks remaining cautious in lending large volumes.

"Before we start to see more adventurous deals on the table, the market has to regain investor confidence. Until then, current securitised deals will remain both small and simple," he remarked.

This theory applies to all asset classes across the market, Jennings-Mares added. "We should expect to see the structured finance market recover. Again, however, it will be the smaller and less complex deals in the pipeline until there is a competent change."

Out of all the asset classes, however, CDOs - synthetic deals in particular - will see the biggest challenge in making a meaningful recovery. This is due, Jennings-Mares continued, to the changes in derivatives markets with the coming central clearing legislation, as well as the lack of volume on the supply side.

With significant amounts of legislation coming into place over the next two years, Green discussed the effects that these legal upheavals may have on the market. "Although new legal frameworks may give uncertainty to the securitised markets at first, it will also provide a clearer landscape going forward, helping investors to structure and package transactions in a more proficient and effective way."

Jennings-Mares concluded the discussion with a highlight of the RMBS market and its focus over the coming years. "There has been a lot of funding in recent years from government schemes, which will soon be phased out. When this happens, there will be a void to fill and - with its wide distribution and increasing need - it is likely that RMBS activity will fill this gap in time to come." 

LB