European securitization has had a great year in so many ways but the same old problems are beginning to appear again, highlighting how much more the market needs to develop.
This year is all but certain to be a record one in terms of issuance volumes. According to Bank of America, this year is just €3bn shy of the 2021's record of €77.8bn, excluding CLOs. Indeed, since late August, deals have come thick and fast as prime auto, mortgages, and consumer loan deals amounted to €14.5bn placed across 30 transactions.
In addition, radical reforms to revitalise securitization in the EU are on the horizon with a European Commission consultation expected to begin next week.
You could be forgiven for thinking securitization had never had it so good... since 2007, anyway.
However, warning lights have flashed on the dashboard in the past month and WiZink Bank's Portuguese credit card ABS, which was priced on Wednesday, was perhaps the clearest signal of the lot.
The class 'A's, rated AA+/AA(hi) by Fitch and DBRS, were priced at 118bp over one month Euribor, tightening from 120bp-125bp at initial pricing thoughts. However, the books were only 1.5 times covered and that included "affiliate interest", which suggested either one or both of the banks on the deal, BNP Paribas and Citi, took a significant portion down themselves.
The last month has seen a wealth of prime triple-A rated paper hit screens, so much so that book building on the seniors became something of a slog by the end of September. Yet WiZink's €280m Vasco 2 struggled to drum up demand, despite being a clear chance to diversify from the prime deluge.
Prime French mortgage originator BPCE Co-operative Bank is looking to price yet another RMBS next week, but there were fears from market participants away from the deal that it may not come to market at all this autumn, such was the difficulty in attracting demand for senior paper.
Altogether, it highlights how, despite the record volumes and the prospect of genuinely revitalising reforms, the European securitization market is still in a difficult spot.
The market still suffers from a shallow investor base, and the work required before buying esoteric paper can be sold in particular, means many investors do not need much to persuade them to take quicker and easier opportunities as soon as there are more than a couple of deals in the pipeline.
It is still a small market. €75bn of placed paper is roughly half the volume of benchmark-sized covered bonds issued this year, at €141bn according to GlobalCapital's Primary Market Monitor. It is also barely a quarter of the volume of investment grade European benchmark corporate bond issuance for the year, of which €278bn has already been placed.
For all of the newfound hope and optimism, European securitization remains a long way away from being revitalised.