Securitisation to make a comeback in 2010 – Clifford Chance

A senior partner at law firm Clifford Chance predicts a resurrection in 2010 of the UK and European securitisation markets, with residential real estate leading the way.

“Securitisation is coming back and residential real estate is definitely going to drive that market,” says Kevin Ingram, a structured debt partner in Clifford Chance’s London office.

After the US subprime crisis took hold in the summer of 2007, confidence in residential mortgage-backed securities (RMBS), and securitisation in general collapsed across the globe. Aside from Eurozone banks issuing deals to access the ECB’s repo facility, the European securitisation market was effectively closed for two years. It was not until September this year that the market reopened, with a £4 billion RMBS issue by Lloyds Banking Group, and a €519.1 million auto loans asset-backed securities issue by German carmaker Volkswagen.

Ingram says there is a political imperative to get securitisation markets working again, and “residential mortgages are probably the absolute paradigm for that”. He points to the UK’s £285 million ‘Mortgage Rescue’ initiative as an example of government efforts to minimise defaults and repossessions.

He also believes that although European RMBS has been stigmatised by association with the US market, the quality of the underlying collateral in Europe is in fact much higher. In the first three quarters of 2009, Fitch Ratings downgraded 137 tranches of European RMBS, and made five upgrades.

“The issue in Europe has been more around bond valuations and perceived problems going forward,” says Ingram. As soon as investors are convinced mark-to-market valuations will not become worse, spreads in the RMBS market will be enough to attract them back to the market, he adds.