A multi-billion euro attempt by the European Central Bank to
revive the market in securitized debt has fallen flat, highlighting
the bank's struggle to boost stubbornly low levels of lending in
the euro area.
In 2014, ECB President Mario Draghi identified the
securitization market as a crucial way to boost eurozone lending.
That year the ECB launched a program to buy up asset-backed
securities, which bundle loans and mortgages into new debt, as part
of measures aimed at injecting around €1 trillion into the
eurozone's financial system.
But in 2015, sales of new European ABS were roughly flat and the
cost of issuing securitized debt in southern Europe actually
increased.
This attempt to revive a type of debt that was at the heart of
the subprime crisis is floundering partly because of the regulation
placed on banks and insurers in the aftermath of that period.
The ECB is also struggling to boost such capital markets because
they were always just much smaller and more fragmented than those
in the U.S.
But for the ECB, the lackluster results point to the
difficulties it faces in stimulating lending to the economy.
"We're not seeing credit growth taking off as in a normal
recovery," said Anatoli Annenkov, a senior economist at Socié té Gé
né rale. "A year ago we were more hopeful the ABS program would
have an impact, buts it's clear this has become a very minor
thing."
Securitization allows banks to package together assets such as
loans and mortgages and sell them to investors, freeing up space on
their balance sheet to lend more money.
That is particularly important in Europe, where companies are
still heavily reliant on banks, as opposed to public markets, to
raise money
"We are a bank-based economy," Mr. Draghi said in 2014.
Central banks want companies to borrow more so that they invest.
In one sign that the ECB's recent measures have yet to take off,
investment growth in the eurozone is trailing that in the U.S.
during its economic recovery.
In one measure of how much businesses are investing, investment
in equipment in the euro area was projected to grow by 4.6% in 2015
compared with the previous year, and a further 4.6% in 2016,
according to the European Commission's last forecast, in
Autumn.
That compares unfavorably to U.S. equipment investment in
periods after the Federal Reserve had been buying bonds. It grew
10.3% in 2011 and 8.8% in 2012, for instance.
Analysts say the U.S. ABS market benefited from the Fed's
bond-buying program, which bought up large amounts of agency
mortgage-backed securities.
U.S. ABS have made a stronger comeback from the financial crisis
that many people still blame these securities for causing. While
new U.S. ABS issuance is still down on its precrisis peak, it grew
12% in 2015 from the year before, according to trade groups the
Association for Financial Markets in Europe and the Securities
Industry and Financial Markets Association.
The overall size of the U.S. ABS market is set to expand by 26%
to around $8.8 billion worth (€8.1 billion) in the third quarter of
2015 from its recent low in 2013, according to AFME and Sifma.
Despite the ECB's efforts, the overall size of the European ABS
market was on track to decline for a seventh straight year in
2015.
"There was initial euphoria until the program started," said
Edward Panek, head of ABS investment at Henderson Global Investors.
"It has had a very limited impact."
Some analysts and investors have criticized the ECB's approach
and the glacial pace of its purchases.
The ECB's buying program has been modest, with only €16 billion
of ABS bought as of Jan. 22, or around 7% of the market eligible
for such purchases, according to Gareth Davies, a strategist at
J.P. Morgan Chase & Co.
In comparison, its government and quasi-sovereign bond-buying
program grew to €530 billion after being launched in March
2015.
Investors have also criticized the ECB for buying too many
securities in safer, Northern European countries, rather than
focusing on lowering funding costs in former troubled spots of
Southern Europe, where it is needed most.
"The Southern European ABS market hasn't opened to the extent
people would have liked," said Mr. Davies, noting there was only
one residential mortgage-backed securities deal last year out of
Southern Europe.
The ECB has faced headwinds beyond its control as it tries to
revive the market.
For a start the markets on its doorstep are just smaller.
Efforts to revive the U.S. ABS market were made easier by the fact
that there was a larger investor base to pitch.
Mr. Draghi has also said that regulation needs to be rewritten
if the market is to thrive.
In the wake of the financial crisis, banks and insurance
companies were told to lay aside large amounts of capital when
holding these assets. This makes them hugely expensive for banks to
own relative to other investments, such as covered bonds, another
form of pooled mortgage debt.
In one potential positive for the ABS market, the European
Commission is trying to change these rules and reboot the market.
Among other measures, the European Union's executive arm is working
on amendments to capital requirements for banks and is expected to
act later this year.
Still, the ECB can at least chalk up one success from its
program.
The ECB's program has been "very helpful in de-stigmatizing the
market," Richard Hopkin, a managing director at AFME, said of an
asset class that has suffered from its association with the
subprime crisis.
Write to Christopher Whittall at
christopher.whittall@wsj.com
(END) Dow Jones Newswires
February 01, 2016 03:55 ET (08:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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