2016 is off to a bumpy start for equity and credit markets. Although, you would not have guessed it based on the Q4 P2P ABS volumes which we noted in our tracker last week.
Consider the shifts in securitization volumes by receivables type (courtesy of AB Alert):
CLO managers (particularly those without access to balance sheet) and Consumer ABS issuers are struggling with risk retention and associated capital charges.
Private label RMBS (not listed due to small volumes) hopes to organize around a standard that is acceptable to issuers, investors, and regulators.
Currently, the fastest growing bucket is Consumer loans – a big chunk of which is P2P – which is also in the standards formation process and testing alternative funding models (marketplace, balance-sheet, and hybrid).
It is encouraging to see the values of simplicity and transparency carrying forward from the P2P cash market into the P2P ABS market. For example, platforms and issuers under Rule-144A ABS have embraced loan-level transparency despite the lighter regulatory disclosure obligations. The securitization structures, which we analyze via our analytics, are straightforward and comparable.
Analytics firms play an important role in setting standards and improving transparency. Three erstwhile startups that come to mind include:
- RiskMetrics (now MSCI Barra) popularized VaR as an industry risk measure
- Bloomberg, at its inception, started as a calculator to price certain bonds
- Markit provided data & analytics to the then opaque corporate CDS market, which led to the growth of a robust index-based derivatives market
All have gone on to make outsized impacts relative to their humble origins, and are inspiring models for us today.
Industry News:
- Keys to a Successful Securitization for Marketplace Lending Platforms (LendAcademy, 01/08/16) Best practices on securitization for platforms from CEO of First Associates, leading servicer for P2P – PeerIQ’s securitization tracker noted
- Ratings Agencies Still Coming Up Short, Years After Crisis (NYT, 01/08/16) Some of the practices that led to the 2008 mortgage crisis continue to persist within major credit ratings agencies
- Why Bernie Sanders Wants To Make Credit Rating Agencies Into Nonprofits (Huffington Post, 01/07/16) In an effort to remove the profit motive, Bernie Sanders calls for Ratings Agency reform for fairer assessments of risk
- Banks vs. Fintech? No Contest, Banks Win (American Banker, 01/08/16) The success of FinTech’s advancement is rooted in traditional banks—participation and coordination key to continued innovation
- Is Basel III Putting a Stop to SME Growth in the UK? (CrowdFund Insider, 01/05/16) Alternative finance outpaces bank lending—filling the funding gap created by global financial regulation
- EU and US securitisation split worries investors (FT, 01/06/16, subscription required) New regulations requiring STS securitizations to originate in the EU create concerns for European investors
Lighter Fare:
- 16 brilliant quotes from Charlie Munger, Warren Buffett’s right-hand man (Business Insider, 01/05/16) Collection of Charlie Munger’s most insightful quotes about investing, business, and life