Wednesday, June 25, 2008

Move to bring in greater ABS transparency

(FT) An initiative designed to provide more transparency in the opaque world of asset-backed securities - one of the markets most severely hit by the credit crunch - is to be launched in response to demands from regulators.

Markit, the data provider, and nine leading banks have joined forces in developing plans to give investors more information on how these highly complex products are priced and structured in the European market.

The European Commission warned bankers last month that these products faced a regulatory clampdown unless they provided greater clarity on the market, which froze in the wake of the credit squeeze last summer as investors shunned all types of complex security, regardless of the quality of the underlying collateral.

Only $36bn of ABS products - bonds backed by cash flows from assets such as mortgages, credit cards or car loans - have been issued this year compared with $315bn during the same period in 2007, according to Dealogic.

Ben Logan, managing director of structured finance at Markit, said: "We will provide investors with documentation on how the deals are structured, what collateral is backing the bonds and how they are performing.

"Knowing which assets are backing a deal is key for investors. The whole market has been tarred with the same brush, yet many bonds have good quality collateral backing them."

Markit is working with the banks to create a website, which will be up and running by September, that will consolidate prospectuses and investor reports for European asset-backed securities.

Markit said it hoped other banks will join BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan, Lehman Brothers, Morgan Stanley, Royal Bank of Scotland and UBS in developing the website.

The move follows a similar initiative launched this month by Lewtan Technologies, another data provider. Lewtan's web portal also covers mortgage-backed bonds and other ABS, giving access to original offering memoranda and the latest investor monitoring reports.

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