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2016
C O M M E N TA RY
European Structured
Finance and Covered
Bond Survey Results
DBRS.COM
Contact Information
Table of Contents
Gordon Kerr
Senior Vice President
Global Structured Finance
+44 20 7855 6667
GKerr@dbrs.com
Securitisation 3
Covered Bonds
10
15 June 2016
DBRS.COM
60-70 billion
150-175 billion
70-80 billion
80-90 billion
175-200 billion
200-225 billion
90-100 billion
100-110 billion
225-250 billion
250-275 billion
110-120 billion
275-300 billion
15 June 2016
DBRS.COM
Covered Bonds
For covered bonds, there is a much more varied picture of views on expectations for issuance in 2016. The bulk of respondents
chose either between EUR 125 billion and 150 billion and EUR 150 billion and 175 billion (16% and 18%, respectively); conversely,
13% chose over EUR 300 billion (Figure 3). While some of these respondents might have been jealous securitisation market
participants, it is more likely that some are extremely bullish on the prospects for covered bond purchases by the ECB through
its ongoing purchase programme.
225-250 billion
125-150 billion
250-275 billion
150-175 billion
275-300 billion
175-200 billion
200-225 billion
Bullish expectations for ECB purchases and hence covered bond issuance are backed up by responses to the question: What are
your expectations for ECB holdings of eligible covered bond issuance in 2016 through its purchase programmes? The vast majority
of responses (78%) were for between 25% to 55% of outstanding covered bonds. The highest proportion (35%) expect the ECB to
hold 25% to 35%. The next highest segment with 24% are a little more bullish (or bearish, depending on whether you are an issuer
or investor) and expect the ECB to hold roughly half of the outstanding eligible covered bonds, or between 45% to 55% (Figure 4).
European covered bond investors currently face a difficult environment with the ECBs purchasing the majority of issuance and
spreads extremely tight. The question is, what is most important to promote growth in the covered bond market? The majority
feel that maintenance of regulatory support (38%), stopping ECB purchases (29%) and the introduction of new collateral (18%)
are the most important things to do to support the covered bond market (Figure 5).
Suggestions under the category of Other included a combination of the main themes above with some subtle difference, further
supporting these factors. The introduction of a 29th regime was interestingly well supported by 6%, mainly by peripheral market
participants. This is in line with DBRS comments that a 29th Regime would be beneficial to some smaller peripheral market
participants.1 The introduction of European secured notes and a return of public sector covered bonds were less supported, but this
is most likely due to the overwhelming need to support the existing market as a first priority.
1. See DBRS Commentary 29th Regime should Support Smaller and Weaker Issuers but is not a Panacea, 22 February 2016.
Structured Finance: Covered Bonds
15 June 2016
DBRS.COM
Rank
4
3
2
1
0
Retail
Deposits
Unsecured
Whole Loan
Sales
Issuer
Covered
Bonds
Securitisation
Banker
15 June 2016
DBRS.COM
Rank
Nothing
AIFMD
MiFiD II
NSFR
ECB QE
ECB ABSPP
ECB Repo
STS
LCR
Solvency II
All Regulations
Number of Votes
Figure 7: Responses to the question: What would you prioritise as the most important things to change to support the growth of the securitisation market?
When analysed in greater focus, there are some interesting differences, depending upon ones market perspective. Separating
survey participants into issuers (including arrangers and bankers) and investors (including researchers and traders), STS is
viewed as the most important, ranking top by investors and second by issuers. Interestingly, issuers ranked ECB Repo as most
important to change, while investors did not. This confirms a long held view by DBRS (see DBRS report: Did FLS Kill the
RMBS Star2) that repo operations by central banks are constricting the supply of transactions. DBRS notes that there has been
an increase in U.K. securitisation transactions in 2016 as the Bank of Englands repo operations diminish. Solvency II and LCR
both rank highly for investors and issuers, while MiFiD II (Markets in Financial Instruments Directive) and AIFMD (Alternative
Investment Fund Managers Directive) rank lowly (Figure 8).
Figure 8: Responses to the question: What would you prioritise as the most important things to change to support the growth of the securitisation market?
12
10
8
6
4
Issuers
Nothing
AIFMD
MiFiD II
NSFR
ECB QE
ECB ABSPP
ECB Repo
STS
LCR
Solvency II
All
Investors
2. Did FLS Kill the RMBS Star?, 9 June 2014, Gordon Kerr et al.
Structured Finance: Covered Bonds
15 June 2016
DBRS.COM
Market participants are also bullish for the prospect of new investors in the market. When asked whether there would be more or
fewer investors in the market in the next 12 months, 33% said there would be more investors in the market. The majority said there
would be no change (45%), but there were 13% who said there would be fewer, and 8% said there would be a lot fewer (Figure 10).
Further to this, when asked what barriers exist for securitisation investors that restrict them from investing, the majority cited a
Lack of Supply top and Regulation second. This is particularly concerning as the market struggles to gain momentum despite
investor interest in the sector.
15 June 2016
DBRS.COM
Autos
RMBS
All Europe
Italy
Eastern Europe
CMBS
Commercial
ABS
Europe ex UK
Germany
None
Consumer
ABS
UK
France
Other
SME CLOs
Netherlands
Ireland
Loan CLOs
Alternative ABS
(P2P, NPL, etc.)
Other
Spain
Portugal
Looking into expectations in greater detail, Italian NPLs and U.K. RMBS are expected to be the main sectors for increased issuance,
followed by European Alternatives, such as NPLs or marketplace lending. This will be followed by high expectations for an increase
in issuance across Europe for Autos, CLOs (both SMEs and Leveraged Loans) and RMBS. Further behind this are the traditional
mainstays of securitisation: Dutch RMBS and German Autos. Interestingly, CMBS does not register in the top 10 (Figure 12).
Figure 12: Top 20 sectors for the question:
Where do you expect to see an increase in issuance in the next
12 months?
Italy - Alternative ABS (P2P, NPL, etc.)
UK - RMBS
All Europe - Alternative ABS (P2P, NPL, etc.)
All Europe - Autos
All Europe - Loan CLOs
All Europe - SME CLOs
All Europe - RMBS
Netherlands - RMBS
Germany - Autos
Italy - RMBS
All Europe - Consumer ABS
Spain - RMBS
UK - Alternative ABS (P2P, NPL, etc.)
UK - Consumer ABS
UK - Autos
All Europe - CMBS
Italy - SME CLOs
All Europe - Commercial ABS
Germany - CMBS
Spain - SME CLOs
Structured Finance: Covered Bonds
15 June 2016
DBRS.COM
Against
For
Unsure
Don't Care
However, should the citizens of the U.K. opt to exit the European Union, the impact on the market is expected to be a widening
of spreads (65%). The next most popular choice was for no real impact on the market (18%), followed by a total market disaster
(11%). Very few participants thought that it would be a positive result should the U.K. choose to exit the European Union, even
from a personal perspective.
15 June 2016
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10
Securitisations
Covered Bonds
For those that also participate in other markets, financial institutions is the most common for market participants to also be
involved in.
Sovereigns
Corporates
Financial Institutions
The majority of survey participants come from a bank, with investment funds, lawyers and other the next most common participation.
Finance Company
Trustee
Servicer
Bank
Law Firm
Corporation
Investment Fund
Insurance Company
Hedge Fund
CLO Manager
Pension Fund
15 June 2016
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11
Global
Pan-Europe
Domestic Only
Western Europe
Southern Europe
Northern Europe
Eastern Europe
North America
Emerging Markets
15 June 2016
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