Not long ago, it looked very, very bad for anyone working in, or recently removed from, a role related to securitization. In January Jamie Dimon pronounced the profession dead and buried, saying: “When we look back at industry excesses in areas such as highly leveraged lending and securitization, it is clear that some of these markets will never come back.”
Maybe, though, Jamie spoke too soon. In both Europe and the UK, securitization is running at record levels. In the UK, for example, domestic lenders securitized €221bn ($292bn) of mortgages in 2008, nearly double the €130bn issuance in 2007 and €123bn in 2006.
Unfortunately, it’s unwise to read too much into these figures. In both the UK and Europe, MBS issuance has been artificially sustained by the Bank of England and ECB, which have allowed banks to swap highly rated mortgage backed assets for more liquid government bonds.
Fabrice Susini, global head of securitization at BNP Paribas, says most of these repo deals with central banks attract limited resources given their “standardisation.” He adds that when they’re discounted from the figures, “there haven’t been any significant big mortgage-related transactions in the last 18 months.”
However, Susini says some areas of the securitization market are still doing ok. “Asset backed commercial paper (ABCP) conduits are still working as usual and are fairly active.”
There’s no hiring at banks though. Ted Tracey, a securitization specialist at search firm Clifden Partners, says most of the securitization professionals let go by banks are getting re-housed on the buyside. For example, Henderson Global Investors recently hired Ganesh Rajendra, a former head of securitization research at Deutsche Bank. That there’s a market for mortgage backed securities is reflected in Credit Suisse’s results today, which cite secondary trading in US RMBS as a source of ‘strong results’ in the past quarter.
Could banks’ appetite for securitization expertise recover in future? Maybe. In February securitization professionals said they didn’t expect a comeback before 2011. And in his budget yesterday, Alistair Darling announced 50bn of guarantees for new mortgage backed bonds in an effort to restart the UK market.
Susini says it’s too early to judge whether Darling’s plan has any chance of success. If and when securitization is revived, however, the profession may yet prove understaffed: most teams have been decimated and banks like UBS have pulled out altogether.