European securitisation issuance suffers 36% drop in Q1

More bad news for Europe’s flagging securitisation industry.

Total issuance for the continent’s market fell to €36.7bn in the first quarter, down 36 per cent compared to the same period last year, and 39 per cent lower compared to the fourth quarter of 2016, according to data from the Association for Financial Markets in Europe (AFME).

The securitisation business, where loans, ranging from mortgages to credit card debt, are packaged up and sold as bonds to investors, has struggled since the financial crisis.

Measures to boost the market, which is seen by policymakers as an important source of funding for new lending, have failed to lift issuance volumes, and many securitisations have been retained by banks rather than sold into the market.

Of last quarter’s new issuance, €16bn was placed with investors, slightly higher than the €14.5bn placed in the first quarter last year, but still less than half of overall issuance, and low by historical standards. In 2007, €419bn was placed over the full year.

Proposals to reduce capital charges on securitisations as part of a capital markets push have been delayed in the European parliament, with critics pointing to the industry’s negative association with the US sub-prime mortgage collapse.

Cheap central bank funding has also discouraged banks from using the market to fuel new lending. Several investment banks, including Nomura, Barclays and Deutsche, have over recent years cut back on their securitisation businesses.

In the UK, securitisation of residential mortgage-backed securities was just €2.5bn in the first quarter, compared to €5.6bn in the fourth quarter of 2016.