ECB get­ting ag­gres­sive on buy­ing as­set-backed debt

The Pak Banker - - FRONT PAGE -

The Euro­pean Cen­tral Bank is be­com­ing more ag­gres­sive in try­ing to pro­cure as­set-backed debt af­ter its pur­chase pro­gram drew crit­i­cism from in­vestors and traders dis­ap­pointed by its reach.

In­stead of just buy­ing notes di­rectly from banks, the ECB is now tar­get­ing in­vestor hold­ings, ac­cord­ing to four peo­ple fa­mil­iar with the mat­ter, who asked not to be iden­ti­fied be­cause they're not au­tho­rized to speak about it. Fund man­agers hired by the cen­tral bank started send­ing un­so­licited re­quests for se­cu­ri­ties in June, the peo­ple said.

The ECB is seek­ing to in­ject new energy into its pur­chase plan for as­set-backed debt, which it started last year to help boost lend­ing in the euro-area. The pro­gram has been hin­dered by lack of new is­suance and an ap­proval process for ac­qui­si­tions that takes as long as five days.

"The ABS pro­gram has been heav­ily crit­i­cized in some cir­cles, and cer­tainly the pur­chases have been slower than many peo­ple thought," said Rob Ford, a Lon­don-based money man­ager at Twen­ty­Four As­set Man­age­ment, which man­ages 4.9 bil­lion pounds ($7.7 bil­lion) of as­sets. "It makes sense for the ECB's agents to ask the deal­ers to go out and seek of­fers di­rectly from in­vestors."

Since the pro­gram started in Novem­ber, the ECB has bought 11.2 bil­lion eu­ros ($12.8 bil­lion) of notes, about a 10 per­cent of pur­chases made un­der a sim­i­lar cov­ered bond pro­gram that's man­aged di­rectly by the cen­tral bank and less than 3 per­cent of its to­tal bond-buy­ing pro­gram.

An ECB of­fi­cial in Frank­furt wasn't im­me­di­ately avail­able to com­ment on its pur­chase pro­grams.

The ECB said it wants to re­vive the as­set-backed debt mar­ket, which shrank al­most 50 per­cent since 2010, be­cause the notes al­low banks to trans­fer risk to in­vestors and of­fer more credit to com­pa­nies. Sales of the debt at 55 bil­lion eu­ros this year, while more than the 47 bil­lion eu­ros in the same pe­riod a year ear­lier, re­main short of the 255 bil­lion eu­ros raised in the same pe­riod of 2006, the busiest year for sales, ac­cord­ing to data com­piled by JPMor­gan Chase & Co.

"I was hop­ing to see the ECB's pro­gram spur more prime is­suance but it hasn't dra­mat­i­cally im­proved this part of the mar­ket and is turn­ing out to be some­thing of a damp squib," said Gor­don Kerr, head of Euro­pean struc­tured fi­nance re­search at credit rat­ings firm DBRS in Lon­don. "Ur­gency is needed to help spur on the prime mar­kets."

While the cen­tral bank has ac­quired cov­ered bonds un­der two pre­vi­ous buy­ing pro­grams, it has never pre­vi­ously bought as­set-backed bonds. Lack­ing ex­per­tise and knowl­edge of se­cu­ri­tized debt, the ECB sought ad­vice from a unit of Black­Rock Inc. and hired NN In­vest­ment Part­ners, Deutsche As­set & Wealth Man­age­ment In­ter­na­tional, State Street Global Ad­vi­sors and Amundi to carry out the trans­ac­tions on its be­half.

The third-party money man­agers have to pre­pare lengthy doc­u­ments de­tail­ing the in­vest­ment case for each bond and await sign off from the cen­tral bank. By send­ing lists of de­sired se­cu­ri­ties, known as of­fer­swanted-in-com­pe­ti­tion or OWICs, the ECB can in­crease its hold­ings of trans­ac­tions it has al­ready ap­proved for pur­chase, said Dal­i­bor Jarnevic, an ABS trader at DZ Bank AG in Frank­furt. "With such a lengthy ap­proval process this change can help the ECB to lever­age its hold­ings of ap­proved deals," said Jarnevic. "Bring­ing in real money in­vestors through OWICs is a good way to find more bonds to buy."

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