The final day of ABS East in Miami closed on Tuesday late afternoon and we’re back home with no suntans.
Those of us who didn’t overdo it on Monday evening (we won’t mention names) started Day 3 at a panel discussion titled “Lessons from the Financial Crisis: Required Steps for Rebuilding the Investor Base and Future Sources of Liquidity.”
Talking about RMBS, the consensus is that the economics just aren’t working for issuers, let alone the other impediments to getting deals done these days. Current interest rates on jumbo mortgage loans are too low. Over the next six months, however, at least one panelist thinks spreads will come in and the dearth of alternative investment grade securities that are attractive to investors will help the RMBS sector.
One panelist said that too much leverage cracked the world economy and if institutions become so highly levered again, it will happen again. Insofar as regulations are concerned, many of us agree with him that it is irresponsibility that needs to be regulated.
Noting that the regulatory changes are aimed directly at improving asset quality, Dechert partner John Timperio summed up the regulatory mess by telling it like it is: the regulatory landscape is uncertain; and that uncertainty needs to be resolved. With respect to the ratings agencies, John Timperio said that the solution isn’t 17g-5 (and no one has heard of any unsolicited ratings as of yet), but investors realizing the limitations on what ratings mean and doing their own diligence.
The next group of panelists discussing Global Regulatory Initiatives and the Broader Impact on U.S. Securitization Practices reiterated much of the same—that regulation needs to be coordinated and clear and create a level playing field (between banks and non-banks for example). The hope is that there is a consistency of message and it would be ideal if all the relevant rules came out at once. And what the SEC is seemingly losing sight of is that the players are “big boys and big girls” and whatever part of a capital stack is purchased, investors know there’s no sure thing.
Overall, the conference didn’t feel like a job fair and attendees seem committed to getting things going again in our corner of the capital markets.
Next year: same time (thereabouts), same place.
By Ralph Mazzeo and Laurie Nelson.