IFRS-9 may hinder economic recovery

IFRS-9 may hinder economic recovery

The Covid-19 pandemic has a big impact on the economy and the banking sector. Since the implementation of IFRS9 in 2018, banks have to take large provisions early on in a crisis. Bank capital will become tighter and consequently banks will be less able to support a speedy economic recovery. Securitisation techniques may help banks address unwanted fluctuations in IFRS9 loan loss provisions. Mike Nawas from Bishopsfield Capital Partners, weighs up the advantages and disadvantages, in an article he published in Dutch together with his colleagues at Nyenrode Business University.

Read the article in Dutch: IFRS-9 kan economisch herstel in de weg zitten

ABS Surveillance – Investors ignore the regulation at their peril

ABS Surveillance – Investors ignore the regulation at their peril

Regulators require that Asset-Backed Securities (‘ABS’) investors conduct on-going surveillance with significant penalties for non-compliance. We investigate how regulators define surveillance requirements and how an investor can demonstrate compliance. This Market Insight introduces a surveillance framework enabling investors to demonstrate best practice to their regulator.

Market Insight 26-05-2015 ABS Surveillance – Investors ignore the regulation at their peril

Do Multiple Credit Ratings Signal Complexity?

Do Multiple Credit Ratings Signal Complexity?

Evidence from the European Triple-A Structured Finance Securities

In much of the current research on market practices with respect to the use of credit ratings, the rating shopping hypothesis and the information production hypothesis feature prominently. Both of these hypotheses predict an inverse relationship between the number of ratings and a security’s funding cost; that is, more ratings will reduce funding costs and, conversely, fewer ratings will increase funding costs.

Our study finds precisely the opposite to have been the case for the mainstay of the structured finance securities market in Europe prior to 2007, namely the triple-A tranches of European residential mortgage-backed securities.

Our findings suggest that structured finance markets may behave differently than what would be predicted by two hypotheses traditionally used to explain the number of ratings and funding costs: the rating shopping and information production hypotheses. Obtaining multiple credit ratings may be a signal for complexity, for which investors demand a risk premium.

Download the full paper: Do multiple credit ratings signal complexity? Evidence from the European triple-A structured finance securities

Draghi’s ABS purchase programme – will it be enough?

Draghi’s ABS purchase programme – will it be enough?

Is the asset-backed securitisation (“ABS”) purchase programme, proposed by the European Central Bank (“ECB”), aimed at preventing economic deflation or at building confidence in a stuttering securitisation market? Or is it the European way to recapitalise banks? Or, is it a mechanism to prompt banks to intensify lending to SMEs and other parts of the “real economy”?  Some would argue that it is meant to achieve all of these; some would be more optimistic than others. Mario Draghi, in his European Parliament address on September 22nd 2014, has provided important insights into what the programme will constitute when it is formally announced on October 2nd. Our Market Insight establishes whether it is likely to be enough to achieve the aim of having securitisation contribute to real economic growth in Europe.

Market Insight 26-09-2014 Draghi’s ABS purchase programme – will it be enough?

The Eurozone Debt Crisis: Can Structured Finance Help?

The Eurozone Debt Crisis: Can Structured Finance Help?

We all know that Structured Finance has had its own fall from grace in 2008. But now that debt investors have shifted their concerns mainly to sovereign debt whilst the credit performance of structured finance debt seems to be holding up, there is an opportunity for governments to consider applying structured finance solutions, that offer creative ways of leveraging their assets, in an effort to curb budgetary debt problems paving the way for sustained economic growth. In this article we examine the case for governments in the Eurozone to seek out sound structured finance funding as part of their debt packages.

Market Insight 27-09-2011 The Eurozone Debt Crisis: Can structured finance help?

Unexpected Jeopardy

Unexpected Jeopardy

Thankfully, bankruptcies of financial institutions which are also originators of consumer loan or residential mortgage backed securitisation transactions are rare. Why do we say “thankfully”? Aren’t securitisations “bankruptcy remote”, i.e., structures that can withstand a bankruptcy of the originator? They are indeed. But, in practice, originator bankruptcy has resulted in impairment to the value of noteholders’ securities and clear weaknesses have been uncovered in typical securitisation structures and the analysis and thinking that underpinned them. In this Market Insight we look at what lessons can be learned from the bankruptcy of DSB, a small Dutch consumer bank active in securitisation, and how this case might shape the securitisation market in the Netherlands – an active securitisation market post crisis.

Market Insight 29-11-2010 Unexpected jeopardy

Results of our European securitisation investor survey: Let the sunshine in.

Results of our European securitisation investor survey: Let the sunshine in.

As the European securitisation market gathers in London this week for the annual industry conference, many participants will be wondering if the market is finally showing signs of robust recovery and if perceptions towards securitisation are normalising. In this Market Insight, we share our findings from our survey of 26 investors. It provides insight into evolving attitudes, investment appetite and market prospects for the next 12 months. The consensus appears to be moving towards optimism; so, befitting a pre-summer conference, we signal a call to the market to “let the sunshine in”.

Market Insight 15-06-2010 Results of our European securitisation investor survey: Let the sunshine in