Trends in the European securitization market – Q2 2022
In this article, we are going to review the main trends affecting the European securitization market during the second quarter of 2022.
A downward trend for the second quarter of 2022 compared to a rather solid Q1
With the issuance of EUR 34.0 bn, the European Securitisation market registered a significant reduction (-46.8%) compared to the first quarter of 2022 (EUR 63.9 bn), even though in absolute terms, the volume is aligned to Q2 2021 (EUR 36.4 bn) and above the median of recent years.
Q2 2022 also showed a decreasing number of transactions (278 after tipping over 300 in Q1 2022), somehow slowing down the upward trend observed since 2017. Nevertheless, the average deal size is keeping its momentum, reaching €905m. This implies a full recovery of the pre-Covid19 pandemic levels.
Several factors have influenced market actors’ involvement inside the market: the current geopolitical instability that is afflicting the European continent due to Russia’s invasion of Ukraine, the tightening of the ECB monetary policy (with an increase of 0.5% of the interest rates announced on the 25th of July but discounted well in advance by markets) and the inflationary environment have most likely pushed investors and originators to wait for a better window of opportunity to price their deals.
Comparing Q2 2022 and Q2 2021, a strong polarisation of the market around residential mortgage-backed securities (RMBS) can be observed. RMBS took almost half of the total issued volume, and such an increase came mainly at the expenses of consumer ABS, which decreased by 17 percentage points (from 27% to 10%), Auto (from 21% to 17%), and Commercial mortgage-backed securities (CMBS, from 22% to 20%)).
The only other category that showed an increase is Collateralised loan obligations (CLOs) which made up 22% of deal volume in Q2 2022, representing an increase of 2% compared with Q2 2021;
Looking at geography distribution, the UK is substantially holding FY 2022’s volume, while the majority of the other European countries (in particular Italy, Germany, Ireland, and the Netherlands), are showing a significant slow down in 2022 compared to the previous year.
The only European countries that seemed to not be affected by this negative downturn are France (boosted by retained transactions) and Spain (which realigned to 2020 volume after pausing issuance in 2021).
A look at the Retention Rate
Moving to the retention rate, which indicates the amount of securitization that “remains” on originators’ balance sheet, Q2 2022 shows a slight increase indicating a lower absorption of deals by the market.
In light of these negative factors, the end-of-year issuance forecast has been revised downward. According to Morningstar, by the end of 2022, it is expected to have an issuance volume of EUR 180-190bn (with an expected 45%-50% distribution ratio) compared to the EUR 200-210bn forecasted in January 2022 (with an expected 55% distribution ratio).
Europe versus the United States
Let’s now compare the trends and evolution of the European securitization market with the US’s one. The observed downturn trend appears to be global: the US securitization market has also recorded a slowdown, with USD 77.5bn ABS products (-4.0% compared to Q1 2022) and USD 576.8bn MBS products (-25.5% compared to Q1 2022) issued in the second quarter of 2022. Therefore, the market seems to be maintaining the negative trend already started in Q1 2022.