14 October 2015 – Expansión
The US investment management company is proposing the creation of a new supra-national entity to acquire securitisation products.
Anniversaries are often a good time to take stock and a year has now passed since the European Central Bank (ECB) announced the launch of its plan to buy securitisation products in the market. The effective acquisitions began in November and so far amount to €13,105 million. Has the effort made by the ECB to support this program been worth it? According to Pimco, the global fixed income giant, the answer is a resounding no.
And not only because the amount acquired so far represents only a tenth of the bond purchase program to date and less than 4% of the public assets, or because the acquisitions have centred on those countries that need the least help in their securitisations markets (Central Europe). All of those factors counts towards to the overall assessment, but Pimco thinks that there is much more to it.
For starters, the US investment management company considers that it is neither the appetite of investors, nor the price that is strangling the issuance of securitisations. The banks have limited liquidity needs at the moment and they can obtain the financing they do need through other simpler instruments, such as bonds or by appealing to the ECB. It is the regulation and the impossibility of freeing up capital with the sale of securitisation products to investors that is causing this issuer drought in Europe. “The banks that need relief for capital requirements are not receiving it under the current regulatory and economic framework for securitisation products”, explains Pimco, in a report published by the company that specialises in this field.
To that it adds the design of the ECB’s plan itself. There is general criticism that the supervisor is being excessively cautious with its purchases: the slowness with which it is analysing each possible purchase and the fear it is showing when it comes to buying assets that may generate problems, have been the commonplace. And the US management company is joining the ever-growing list of critics of the program. They say that purchases are being concentrated in the wrong countries, as well as in the wrong sectors and tranches of the securitisation products, because that is not where the banks need help. Pimco believes that the ECB should focus on buying the most risky tranches of debt issues, because that would help lower prices and free up capital for the banks.
Moreover, the ECB should not only buy the tranches with the highest risk, it should also do so in those countries in which, until now, it has barely made a mark. Pimco points to the periphery of Europe, “where the prices of loans are still high and access to credit is scare”. And by way of example, it cites Spain, the rate of growth in terms of loans is low and the margins being charged on those loans are high. (…)
If power needs to be granted to the European Investment Fund to do make these purchases or a new supra-national entity needs to be created to assume the first losses from the securitisation products acquired, then Pimco insists that that is exactly the action that should be taken.
And all of this would be for the greater good. “If carried out correctly, we think that the European securitisations market could help to cure the continent’s economy, stimulating credit and access to it, especially in the peripheral regions”, concludes the investment management company.
Original story: Expansión (by Inés Abril)
Translation: Carmel Drake