More securitisations are needed to finance economic recovery in Europe, according to Richard Ambery, who has been appointed as General Counsel by boutique asset manager Managing Partners Group.
Ambery, who is a globally recognised and award-winning thought leader in structured finance law and a key contributor to Malta’s securitisation legislation, believes the instruments, which can offer returns of over 5 per cent per annum, will also fill a ‘yawning gap’ in product offerings to investors as they seek higher current yields in an era of flat or negative “risk free” rates.
He says: “Governments in Europe are realising, perhaps a little late, that securitisations can ride to the rescue, especially given the problems that the Eurozone faces. They played a key role in helping the US economy to recover from the savings and loan crisis of the 1980s and the current funding gap in Europe could be plugged by securitisation providers intermediating between investors and businesses that need capital.
“There are many infrastructure projects in Europe that need to be financed and which would create huge numbers of jobs but finance is also needed by SMEs, which account for about 90 per cent of businesses in the EU and have been responsible for most economic growth there in recent years.”
While securitisations suffered reputational damage post the financial crisis, their level of issuance is back around pre-credit crunch levels in the US but has yet to recover in Europe. Ambery adds: “The over-complicated securitisations backed by poorly selected or obscure assets at the heart of the financial crisis resulted in all structured securities being tarred with the same brush, which was largely unjustified. Post credit crunch pricing has demonstrated this amply, even if European issuance is yet to catch up.
“In contrast to the standard mutual fund model, securitisations are designed to offer a high degree of certainty about where investors’ money is directed, lock-up period and risk exposure for the return offered. And since securitisation transactions disintermediate banks, with their enormous infrastructure, regulatory and legacy compliance costs, both savers and borrowers get a better deal by cutting out the middle man.”
Malta and Luxembourg are the only two financial centres in Europe with a comprehensive regulatory infrastructure in place to domicile securitisation vehicles. Standing out, Malta embraces securitisation cell companies to make issuance platforms more cost effective for smaller and more frequent borrowers. The local tax rules also allow for a cushion of cash collateral to build up as investor protection without the vehicle getting hit with a bill for income tax.
