ECB getting aggressive on buying asset-backed debt

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."