As 2014 comes to a close the Financial Markets will look back on the year with mixed views. It has been a year driven by policy uncertainty and the impact of regulatory change. Policy uncertainty continues in the approach to stimulating growth in the EU and the global economy: The finalisation of the implementation of the EU ABS Purchase Programme and the Covered Bond Purchase programme failed to generate enthusiasm and an EU Bond Purchase Programme continues to be discussed but not delivered. The results of the EU comprehensive assessment including the Asset Quality Review were published with only a small number of EU banks failing the capital requirements. Rather than engender a sense of security in the EU banking sector it has highlighted how difficult the sector is likely to be going forward as higher capital requirements, increasing non-performing exposures, increasing fines and penalties, expensive IT and property infrastructure and a low margin environment combine to effect return on capital and make the model for some banks and certain asset holdings unsustainable. Recent announcements (in the UK) that limit the ability of banks to offset losses against future profits and the need to finalise a liquidation regime will add costs and pressure. This is likely to generate increasing opportunities for portfolio purchasers and platform service providers but is unlikely to stimulate lending to the SME community. In the US the Final Rules on introduction of a retention requirement requiring CLO managers to retain an economic interest in securitised exposures will hit recent growth in CLOs reducing a source of welcome liquidity and revenue capacity.
Markets do however continue to evolve. We are seeing continued activity in the high yield market and Abengoa’s recent bond presented a new twist with the issue of its first green high yield bond. Interest and activity continue to develop in Islamic bond products and Asia is developing a more integrated capital market. The securitisation market continues to be active in certain categories and for the reasons explained above portfolio sales are likely to continue to grow. 2014 also saw the return of a number of CMBS deals and expectations are that the number of CMBS deals will increase in 2015. We also expect to see the further development of the European private placement market as institutional investors take an increasing role in direct negotiation of bond terms and significant stakes in European assets to generate tailored profiles and enhanced yields.
The widely held view is that there are significant pools of capital available to be invested but there is an increasing shortage of investable assets. 2015 is likely to see new financial products, developing markets and new opportunities as well as risks. It is hoped that policy makers and regulators will recognise that growth requires an active capital market and increased availability of capital through a liquid risk transfer and capital transformation mechanism and set the balance at an appropriate level.
Wishing everyone a happy and successful end to 2014.
In This Issue:
– AQR AND STRESS TEST RESULTS – A PERIOD OF REFLECTION FOR THE EUROPEAN BANKING SECTOR
– OTC EQUITY DERIVATIVE TRANSACTIONS REFERENCING LISTED COMPANIES’ SHARES
– COMMISSION DELEGATED REGULATION ON LIQUIDITY COVERAGE
– INTERCREDITOR ARRANGEMENTS IN RESPECT OF WHOLE LOAN TRANSACTIONS
– PRINCIPAL WITH PRINCIPLES – AN OVERVIEW OF “GREEN” BONDS”
– CONNECTING TO ASIA’S BOND MARKETS
– ISLAMIC BONDS (SUKUK), AND WHY EVERYONE IS TALKING ABOUT THEM…
– US CREDIT RISK RETENTION RULES: WILL CLOs SURVIVE?
– HAS THE EUROPEAN HIGH YIELD MARKET COME OF AGE? OUR OBSERVATIONS FROM AFME’S 9TH ANNUAL HIGH YIELD CONFERENCE
– THE EUROPEAN CENTRAL BANK’S PURCHASE PROGRAMMES
Please see full Publication below for more information.