* ECB and BoE see securitisation as a way to reboot economy
* Market in doldrums in Europe despite low default rates
* Bankers say regulation will have to be eased to revive it
* Market of "simple and transparent" securities too small
By Anil Mayre and Anna Brunetti
BARCELONA, Spain, June 13 (Reuters/IFR) - Six years after
mind-blowingly complex securitised debt brought the global
financial system to its knees, the bankers behind the market are
wary of official efforts to rehabilitate it in Europe.
In the years leading up to 2008, when loans were transformed
into bonds, many were repackaged again and again, acquiring
triple A ratings despite links to U.S. sub-prime mortgages, and
earning the nickname "toxic sludge".
Yet the European Central Bank (ECB) and Bank of England
(BoE) say they want to revive more straightforward asset backed
securities (ABS) in the hope of ramping-up lending to
credit-starved businesses and rebooting the regional economy.
Attendees at the industry's annual meeting in Barcelona say
it will take more than positive words to overcome their pariah
status in Europe and worry that official efforts to exclude the
riskier parts of the market will make it unworkable.
"Don't confuse words with action," James Hewer, a partner at
PwC's structured finance team, told delegates at a meeting far
more low key than those before the crisis, when bankers supped
cocktails and, one year, danced to the Gypsy Kings.
For a graphic on asset backed securities in Europe and the
United States click on link.reuters.com/rus99v.
Delegates are cheered by the calls for a revival of the
moribund market from London and Frankfurt but sceptical it can
be a meaningful driver of economic growth unless the regulatory
clamp down triggered in the wake of the crisis is eased.
Bankers want regulators globally to reduce the amount of
capital that lenders, who create the debt, and insurance
companies, who could buy it, must set aside in case the bonds
lose their value, as in 2007.
To facilitate that, the ECB and the BoE want to create a new
category of "high-quality" asset-backed securities that would
have lower capital charges. The definition is still being worked
out but it would include loans to businesses and exclude
sub-prime mortgage securities and exotic derivatives.
Bankers worry, however, that such a definition might end up
being too narrow and would make securities falling outside it
untradeable, shrinking an already shallow market and further
deterring investors who like to have a deep supply.
To get the market going, the ECB has signalled that it might
buy "simple and transparent" securities itself but bankers argue
such assets are thin on the ground because banks have already
parked them with the central bank in return for cheap funding.
"You do have an investor base out there, but a large part of
it disappeared because of the Bank of England and the
ECB themselves," said Gordon Kerr, head of Structured Finance
The ECB's decision last week to offer further cheap funding
to banks via "targeted longer term refinancing operations" may
also discourage banks from issuing asset backed securities if
they can get funding cheaply from Frankfurt, delegates said.
TARRED WITH SAME BRUSH
The transformation of mortgages, business loans and consumer
debt into securities that can be sold on to investors makes
economic sense because it gives banks a source of funding and
frees up their balance sheets, in theory reducing lenders' risk.
It also enables companies to tap capital markets directly.
Car companies who provide finance to customers, for example, can
repackage those repayments and sell them on to investors.
Used recklessly, however, securitisation can be
The repackaging of mortgages given to risky U.S. borrowers
fuelled the last financial crisis because they were not valued
correctly and were bundled into a suite of products whose
riskiness was not reflected in the ratings assigned to them.
So lucrative was this financial wizardry for Wall Street
that some mortgages were created just to enable more
Securitisation experts in Europe argue they are being blamed
for the sins of their U.S. peers. European asset backed
securities are traditionally simple and transparent. Their
default rates held up well during the crisis, coming in at
around 1.4 percent between mid-2007 and the first quarter of
2013 compared to 17.4 percent in the United States.
U.S. authorities did not clamp down as hard on the
securitisation industry, where it is a bigger source of funding
for the economy than in Europe, and the market there has had
more of a recovery with $2.2 trillion worth of securities issued
in 2013, around two-thirds of the pre-crisis annual rate.
The market in Europe, where issuance levels are under half
the pre-crisis annual rate, is also constrained by the different
ways in which information on securitised debt is disclosed
across Europe, making it difficult for investors to get a clear
overall picture of what they are buying.
Indeed, the biggest problem will be trying to get investors
on board rather than giving banks more incentives to take part.
Janet Oram, a director at asset manager Blackrock, warned
that with the new goodwill being shown to the market from
regulators, bankers would have to tread carefully.
"We can't afford to take a step wrong," she said.
(Additional reporting by Eva Taylor in Frankfurt and Sarah
White in Madrid; writing by Carmel Crimmins; editing by Philippa