By Huw Jones
LONDON (Reuters) – Europe’s first “simple” asset-backed security was issued in the first quarter of the year under new rules aimed at reviving a market that turned toxic in the financial crisis a decade ago, banking lobby AFME said on Thursday.
Asset-backed securities based on subprime U.S. home loans turned sour in 2007, leading to a global markets meltdown that forced governments to bail out lenders with the securities on their books.
The market, where home loans are bundled into an interest-bearing security, is still struggling in Europe.
The Association for Financial Markets in Europe (AFME) said 32.4 billion euros (27.93 billion pounds) of securitised products were issued in Europe in the first quarter, down 63 percent from the fourth quarter of 2018, and down 44.6 percent from 58.5 billion euros in the first quarter of 2018.
The European Union has approved a law to encourage issuance of a new breed of more stringently regulated securities, known as STS or simple, transparent and standardised.
The aim is to revive the market and offer companies a capital market alternative to bank loans for funding growth.
AFME said a delay in fleshing out the new EU law contributed to the sharp decline in issuance in recent months.
“However, in March, the European securitisation market saw the first transaction aimed to be compliant with the new STS regime, with further STS-compliant transactions currently in the pipeline,” it added.
In April the first STS-compliant securitisation in Britain was issued and, in a further first, it referenced Sonia, the Bank of England’s overnight rate which is replacing the tarnished Libor interest rate benchmark.
Securitisation in the United States recovered more strongly from the financial crisis, with 292.7 billion euros of issuance in the first quarter of this year, AFME said.
(Graphic: AFME chart, https://tmsnrt.rs/2LH9HES)
(Reporting by Huw Jones; Editing by Mark Potter)