The Spanish renewables market is highly competitive. Market pricing is increasingly less reliant on subsidy. Spain is committed to growing renewable power capacity by approx. 50GW by 2030. This Market Insight examines some recent initiatives and significant steps being taken to reduce carbon emissions, including the impact of increased cross-border investor interest.
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
Peer-to-peer (“P2P”) and peer-to-business (“P2B”) platforms have changed the dynamics in the credit markets. They have become more appealing and useful to the public. In addition, they have become increasingly attractive to investors, who are either looking to invest in P2P and P2B companies themselves, or to utilise borrower-lender matchmaking services offered in these platforms. However, as access to credit becomes progressively effortless thanks to these platforms, market failures surface. Given the significance P2P and P2B platforms have gained in the corporate credit market, we examine whether it possible to mitigate these market failures.
This paper discusses how a lender must balance mitigating relationship damage whilst not limiting legal remedies if a borrower breaches its debt facility agreement. We argue that adopting measured communication strategies to complement robust legal responses is essential and enhances the likelihood of an efficient and effective resolution.
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.
With interest rates at historically low levels, fixed income investors are on the hunt for investment opportunities with attractive risk/return profiles. Residential real estate debt appears to be one such opportunity in Europe. Risks are modest and returns are alluring. But what type of residential real estate debt instrument to invest in? Loan format, bond format or securitised format? In this Market Insight we compare and contrast the alternative investment opportunities that fixed income investors have when investing in residential real estate debt in Germany, the Netherlands or the United Kingdom.
Picture this, you have several billion Euros to invest in fixed income type products every year and are expected to deliver a return which outperforms the market. You are required to invest in relatively low risk debt instruments. You have to contend with the consequences of Central Banks weaning the markets off Quantitative Easing and the uncertainties as to which of the many muted regulatory regimes will be implemented and in what form. Lastly, you must keep a close eye on performance of your portfolio and the potential for mark to market losses. Welcome to the world of the fixed income investor. With this in mind, we surveyed fixed income investors to find out what investment strategies investors intend to deploy over the next eighteen months.
In the aftermath of the financial crisis regulators are moving ahead with the separation of the high street and investment operations of banks. Ringfencing of the retail operations of banks is an alternative to forcing complete de-mergers. Supporters of ringfencing argue that the financial system’s stability will increase whilst banks will be able to retain some of the diversification benefits offered by the existence of retail and investment franchises under the same corporate umbrella. But is ringfencing a sustainable solution? This article examines the concept of ringfencing as pioneered in the UK, issues around its implementation and whether it is likely to achieve what it is designed for.
As more details on the EU banking supervision plans emerged at the EU leaders summit last week, it is becoming clearer that the EU is banking on the ESM to finance the transition out of the Eurocrisis. Is this realistic? We believe not. In this Market Insight we put forward the risks of the current ESM set up and our ideas as to how the ESM could increase its firepower without overburdening the EU countries’ sovereign debt ratings. Structured Finance can help!
Since the beginning of the global financial crisis in 2007, many European corporates have first- hand experience of banks tightening their lending criteria, and thereby making it more difficult for corporates to access banking credit. This holds true for large corporates but especially for small, medium-sized and smaller large corporates. It is therefore no surprise that small and mid-cap enterprises say that raising debt financing is one of their two most pressing problems. Against this backdrop, we expect the European banking market to become more disintermediat- ed, as corporates will be looking to by-pass banks and tap the debt capital markets directly. Large corporates have been doing this for years and, as we argue in this paper, we expect their smaller peers to follow this example. Initiatives taken by stock exchanges across Europe to promote the issuance of corporate bonds and to make it easier for small and mid-cap corporates to access capital markets strengthen our belief.