Dec 13 - Strengthening performance and issuance tailwinds in most U.S. structured finance sectors are likely to push growth further in 2013, according to Fitch Ratings in its outlook report. However, one key area to watch in the coming year will be the potential drag created by fiscal cliff-related issues.
'Securitization reestablished its importance to the global capital markets in 2012 and we expect this positive trajectory to continue in 2013,' said Kevin Duignan, Head of Global Structured Finance and Covered Bonds for Fitch. 'The US structured finance market has seen increased interest from both domestic and international investors who are increasingly recognizing securitization as a valuable tool in managing risk and liquidity.'
The looming fiscal cliff is a concern, however. 'While the fiscal cliff is not expected to impact most sectors directly, any broader macro declines triggered by the fiscal cliff fallout could create some drag,' said Duignan.
The consumer ABS sector would be the most adversely affected by any resulting increase in unemployment and taxes. That said, Fitch believes the auto and credit card sectors are well-positioned to withstand additional stress given the currently very low level of delinquencies and losses.
The commercial real estate and corporate sectors may be impacted by increased tax rates, reduced spending and a decline in the growth of GDP. This could create some turbulence for CMBS and CLO performance if the fiscal cliff is not averted.
Unresolved regulatory issues also have to potential to hold back the speed of the market's recovery. 'Numerous Dodd-Frank related issues, particularly related to risk-retention, remain unresolved, and until there is greater clarity on this and related issues, the structured finance market won't be able to make a full recovery,' said Duignan.
Two areas where Fitch envisions the most growth potential in the coming year are RMBS and CLOs. While CLO issuance has, in reality, been increasing significantly since late in the third quarter, Fitch envisions new issuance of CLOs to continue its surge well into next year. As for RMBS, 2013 is shaping up to be the year that larger financial firms begin to return to the private label RMBS market.
'U.S. Structured Finance 2013 Outlook: Tailwinds Prevailing Despite Potential Drag' is available at 'www.fitchratings.com or by clicking on the below link.
Link to Fitch Ratings' Report: U.S. Structured Finance 2013 Outlook: Tailwinds Prevailing Despite Potential Drag