S&P: A Rebound For Global Structured Finance In 2011

Jan. 13, 2011 – In this CreditMatters TV segment, Standard & Poor’s Managing Director Howard Esaki provides an overview of the 2011 global Structured Finance market. Residential mortgage-backed securities should continue to see limited issuance due to the activities of the Federal agencies and the weak housing market, while asset-backed securities and commercial mortgage-backed securities may experience a revival. Low interest rates combined with modest economic growth should contribute to growth in these markets.

Welcome to credit matter is the weekly show highlighting standard & poor’s analysis and global perspective on the latest credit market developments my name is ted burbage and i manage our investor relations team for standard & poor’s structured finance department today we’re going to discuss out 2011 outlook for the global structured finance marketplace

Joining me to discuss this is our head of structured finance research howard asaki howard thanks very much thank you for coming here about a month ago you put out a pretty lengthy actually two pieces outlining or outlook for two thousand two thousand eleven maybe you can start by just summarizing at a high level some of the thoughts that are included in that piece

Yeah what we’re going to what we’re saying in 2011 i think it’s a gradual recovery in the structured finance markets around the world with certain sectors performing better than others you know we think there’s going to be an increase in issuance in cmbs and cielos in the us for example but other sectors will still see problems going forward and on the credit side

We think that the economy improves the credit for structured finance will also gradually improve but there will be some bumps along the road mm-hmm maybe just talk a little bit about each of the you know the primary sector is in kind of terms of you know issuance volumes what we expect i mean as you said it seems like 2010 we kind of reestablished the core you know

Some you know decent level of issuance in the abs surprisingly amount a surprising amount of issuance rather than cmbs not much to speak of in rmbs and then you know a little bit of you know corporate loans do we expect those trends that we saw last year to continue you know as we move into you know quarter 1 2011 and odd word i think a lot of it will continue maybe

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A little bit of accelerated pace you mentioned rmbs we don’t think issuance really going to come back for rmbs for in 2011 the federal agencies fannie and freddie are really dominating that market the loan limits are so high that we really expect minimal issuance in that sector it’s really not economic to do deal in that sector right now so rds which in the past

Has been the largest sector i think there was over a trillion and issuance just a few years ago it’s going to be close to zero 2011 in our view cmds me on the other hand is going to have a substantial recovery we’re projecting about 35 billion in 2011 up from about 10 billion this year si ellos is another area we’re starting to see a lot of activity about 12 to 15

Deals in the pipeline abs is seeing a pretty steady issuance of about 10 billion a month and where we expect that to continue in 2011 so about 120 billion or so and that’s all us that’s all you of course what about globally what are you seeing it lovely we’re also seeing a little bit of a revival especially in europe on the rbi side in the uk and the netherlands

But it’s lagging a little bit behind the u.s. in asia again there’s some australian rmbs being issued but it’s it’s slower it’s coming back probably a little bit behind the us but we are definitely think signs of life in all those markets okay um maybe talk a little bit about the economic backdrop what’s kind of fueling you know the levels of issuance that you you

And the team are forecast yeah we get our forecast from david we saw his chief economist’s and he’s forecasting and i grew this for cats a kind of moderate growth for 2011 gdp growth around two percent low inflation the fed on hold fairly low interest rates although you know the recent tax changes that were enacted should stimulate the economy a little more so i

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Think economist’s are becoming a little more optimistic about the forecast which should help the credit in the sectors that we look at right right um any thoughts on you know potential risks lurking out there that could adversely impact you know some of the issuance issuance volumes number one or even credit performance secondly well i think one of the bigger is

Still out there is home prices you know where sp is forecasting a decline in home prices of five to seven percent in 2011 so that weakness i think could spread to the rest of the economy i mean it’s a it could slow growth if that happens or if we have a kind of a double dipping in home prices so i think that’s one of the biggest risk you really expect a double-dip

Or the how would you handicap or how would i think is double dip in the economy is actually fairly low risk but i think home prices definitely have a risk of declining further because there there’s a lot of mortgages out there then the foreclosure process this overhang is you know will go on for a couple years i think so you know that’s a big risk of the downside

Another thing interest rates have gone up quite a bit in the last couple of months i mean the 10 year has gone up to close to 350 so i think they that actually made dampen some loan origination you know we have a model that kind of estimates cmds issuance and rates go up once that decline so that’s another risk for the issuance side although it would indicate a

Healthier economy of course if interest rates are advising right and then on the corporate loan size certainly you know the high-yield markets been booing even this you know week actually the investment grade markets been booming it seems like the arbitrage is starting to return a little bit into that market d4c clo issuance yeah we’re seeing a pretty healthy

Pipeline as i mentioned though it doesn’t have deals in the market we’re forecasting about 15 to 20 billion in issuance again it’s way off from the peaks but there’s signs of life in that market as well okay so no nothing kind of lurking out there that could impact that you know in addition to what you’ve already mentioned yeah again just the enough there’s a

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Downturn in the economy that would affect the carbon market as well so we would see that affects cielos you know one thing we haven’t touched on maybe just real quickly just the whole area of regular regulation and you know the impact of you know the various you know regulatory you know dodd-frank being i guess the primary one that was put in became well last like

Its mid-year of last year and as that begins to get implemented you know what any views around you know how that could possibly impact issuance volumes there’s no question that the regulatory all the regulatory thinks are going on have been a headwind against issuance that they’re raising the costs of securitisation in our view it’s not going to stop the recovery

In securitisation issuance it will be somewhat of a hindrance because it’s just more expensive to issue you have to consult your lawyers whatever a new issue but i think you know our view is a lot of this is going to get resolved in in 2011 and especially with these divided congress now it’s unlikely to have it in my view more regulation if anything there’s going

To be a pushback against some of the regulations so it will be somewhat of a hindrance but it won’t stop the recovery so in a word or two or three how would you summarize 2011 i think 2011 is going to be a year kind of a turning point for securitisation we’re going to start to see volumes rides are going to see credit improved so all in all i think it’s going to

Be a a pretty good year relative to the past two years okay great well thanks very much sure well thanks for listening we’ll see you next time

Transcribed from video
S&P: A Rebound For Global Structured Finance In 2011 By S\u0026P Global Ratings