Dirección General del Servicio de Estudios

THE SECURITISATION MARKET IN SPAIN: PAST, PRESENT AND FUTURE

Roberto BlancoHead of the Financial Studies Division (DG Economics, Statistics and Research)

WPFS WORKSHOP ON SECURITISATION

Madrid27-28 MAY 2010

OUTLINE OF THE PRESENTATION

1. The pre-crisis period (2000-August 2007)Substantial expansion of ABS and covered bondsMain charateristics of the productsDriving factors of the expansion

2. The crisis period (since August 2007)QuantitiesPricesMain factors

3. The perspectives4. Concluding remarks

2

ABS AND COVERED BONDS EXPANDED SUBSTANTIALLY IN SPAIN BETWEEN 2000 AND 2007 Q2

3

0

100

200

300

400

500

600

700

800

00 01 02 03 04 05 06 07 Q2

ABS COVERED BONDS OTHER FIXED INCOME SECURITIES

OUTSTANDING AMOUNTS. FINANCIAL SECTOR. SPAIN

mm €

SOURCE: Banco de España.

SPAIN BECAME ONE OF THE MAIN EUROPEAN MARKETS FOR ABS AND COVERED BONDS

4

MS RANKING MS RANKING

ABS 13.2% 2nd. (after UK) 14.2% 2nd. (after UK)

COVERED BONDS 13.5%3rd. (after Germany and Denmark)

21.4% 2nd. (after Germany)

SOURCE: European Securitisation Forum, European Mortgage Federation and Dealogic.

OUTSTANDING AMOUNTS J UNE 2007

GROSS ISSUANCE 2004-2007 Q2

SPANISH WEIGTH

ABS VS COVERED BONDS

5

ABS COVERED BONDS

AVERAGE MATURITY (YEARS,J UNE 2007) 25.1 10.5

MATURITY MISMATCH NO YES

RISK TRANSFERYES

(but in practice, small)NO

TRANCHES YES NO

COLLATERAL ANY ASSETMORTGAGES

LOANS TO GENERAL GOVERNMENT

STRUCTURECOULD BE COMPLEX(but not in practice)

SIMPLE

DISTINCTIVE FEATURES OF SPANISH SECURITISATION

1. Simple productsNo CDO, CDO squaredNo synthetic securitisation

2. Less conflicts of interest between originators and investorsOriginators retained the equity tranches

3. Comparatively higher transparency and investor protectionProspectusRegistry at the CNMVLegal framework for mortgages

6

CREDIT RISKS WERE NOT TRANSFERRED WITH ABS

7

0

1

2

3

4

5

6

7

04 05 06 07

PROPORTION OF SECURITISED ASSETS DERECOGNISED

%

SOURCE: Banco de España.

COLLATERAL. ABS VS COVERED BONDS

8

OUTSTANDING AMOUNT. SPAIN. BREAKDOWN BY COLLATERALDEC 2006

8.4

91.6

GENERAL GOVERNMENT LOANS

MORTGAGES

COVERED BONDS

%

38.4

37.1

11.5

4.7

8.10.2

MORTGAGESCOVERED BONDSLOANS TO SMECONSUMER LOANSOTHER ASSETSSECURITIZATION BY NON-FINANCIAL CORP.

ABS

%

SOURCE: Banco de España.

FUNDING WAS THE MAIN FACTOR FOR THE EXPANSION OF ABS

9

0

50

100

150

200

250

300

350

00 01 02 03 04 05 06 07

LOANS (NET FLOWS) DEPOSITS (NET FLOWS)

FINANCING GAP OF SPANISH CREDIT INSTITUTIONS

mm €

SOURCE: Banco de España.

AFTER THE SUMMER OF 2007 PUBLIC ISSUANCE OF ABSs FELL EVERYWHERE

10

ABS. GROSS ISSUANCE VOLUMES

0

100

200

300

400

500

600

700

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

00 01 02 03 04 05 06 07 08 09

USA. NON RETAINEDUSA. RETAINEDEU. NON RETAINED (RIGHT HAND)EU. RETAINED (RIGHT HAND)

USA AND EU

mm € mm €

SOURCE: Dealogic.

0

20

40

60

80

100

120

140

160

180

00 01 02 03 04 05 06 07 08 09

NON RETAINED

RETAINED

SPAIN

mm €

SOURCE: Banco de España and own estimates.

WHEREAS COVERED BOND ISSUANCE WAS MORE RESILIENT

11

COVERED BONDS. GROSS ISSUANCE VOLUMES

0

50

100

150

200

250

300

00 01 02 03 04 05 06 07 08 09

J UMBO OTHER

EU

mm €

SOURCE: Dealogic.

0

10

20

30

40

50

60

00 01 02 03 04 05 06 07 08 09

SPAIN

mm €

SOURCE: Banco de España.

IN TERMS OF PRICES THE IMPACT OF THE CRISIS WAS ALSO LESS STRONG FOR COVERED BONDS

12

-20

80

180

280

380

480

580

680

780

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

SPAIN (5.5 years)

GERMANY (3 years)

FRANCE (4.5 years)

IRELAND (4.3 years)

COVERED BONDS SWAP SPREADS

bp

-20

80

180

280

380

480

580

680

780

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

SPAIN (5-6 years)

UK (5 years)

ITALY (6-7 years)

NETHERLANDS (5 years)

RMBS AAA SPREADS

bp

SOURCE: J P Morgan and Datastream

FACTORS FOR THE WORST PERFORMANCE OF ABSs AT THE INTERNATIONAL LEVEL

1. Lack of investor confidence for ABSsLack of transparency regarding underlying assetsConflict of interests between originators and investors

2. Exit of SIVs and ABCP conduitsThey played a crucial role in transforming maturities in ABSs

3. Market liquidity4. Uncertainty regarding credit quality

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THE PERSPECTIVES: DEMAND

KEY FACTORS:1. Uncertainty regarding credit quality2. Investor confidence in the products3. Liquidity in the secondary markets

For (1), the macroeconomic and financial developments will play a role

For (2) and (3) current private and public iniciatives to re-establish securitisation on a sounder basis will help

14

THE PERSPECTIVES: SUPPLY

15

0

50

100

150

200

250

96 97 98 99 00 01 02 03 04 05 06 07 08 09

SPAIN USA UK EMU

DEBT OF HOUSEHOLDS AND NFC / GDP

%

-50

0

50

100

150

200

250

300

350

00 01 02 03 04 05 06 07 08 09

LOANS (NET FLOWS) DEPOSITS (NET FLOWS)

FINANCING GAP OF SPANISH CREDIT INSTITUTIONS

mm €

SOURCE: Banco de España.

CONCLUDING REMARKS

The pre-crisis levels will not (and should not) be reached in the medium termLower demand: SIVs and conduits will not (and should not) returnLower suppy: deleveraging of the financial and non-financial sectors

But some recovery from the current low levels seems desirable since securitisation can play some important economic roles (not played by covered bonds)Credit risks can be transferred (diversification)No maturity mismatchWider collateral (SMEs)Tranching

Main challenges: Restore investor confidenceImprove market liquidity

Current private and public iniciatives to re-establish securitisation on a sounder basis are welcome

16

THANKS FOR YOUR ATTENTION

DG Economics, Statistics and Research