Almost a year ago to the day, I posted a
blog questioning whether CMBS was the answer to Italian bank
deleveraging woes. One year on, I am pleased to say that the
Italian government (clearly channelling me!) has just reached an
agreement with the European Commission to provide for a guarantee
mechanism for the securitisation of Italian non-performing loans
(NPLs). In effect, the European legislature has given the green
light to the deployment of securitisation as a tool to clean up
Italian bank balance sheets. In other words, the answer to my
question was YES!
This news is a hugely significant, positive sign for European
securitisation markets. Hot off the heels of the proposed
Securitisation Regulation, by agreeing to this securitisation
proposal, the European legislature has once again acknowledged the
vital role that securitisation can play for the European economy.
Turning more specifically to CMBS issuance, the magnitude of this
development will largely depend on the extent to which Italian
banks deploy securitisation as a means of off-loading NPL's
secured by commercial real estate (CRE). However given the
suggested volume of Italian CRE NPLs, the issuance backed by such
loans has the potential to be sizeable.
Since the European CMBS market re-opened in June 2011, Italy has
been one of the jurisdictional bedrocks of CMBS 2.0 being one of a
few countries where there has been a steady flow of deals. The
primary driver for this has, to date, largely been attributable to
CMBS being used as a means of overcoming those Italian domestic
regulations which require institutions purchasing syndicated loans
to have a banking licence. With this in mind, the news that the
European legislature has given the thumbs up to using
securitisation as a means of cleaning up the balance sheet of
Italian banks will have the metaphoric effect of throwing fuel on
the Italian CMBS fire and thus in the coming year it is likely that
we will witness a surge in the levels of primary issuance.
Indeed, such an uptick in Italian issuance should promote
increased evolutionary change in the CMBS product, spurred on by a
need for structures to accommodate a greater variety and number of
non-performing CRE loans. A further consequence of this legislative
measure is likely to be the deepening and strengthening of the
investor base required to absorb and competitively price CMBS
deals. Similarly investors that are already in this space should
finally have the justification to put in place the internal
resources and infrastructure required to invest in this asset class
in real volume. Finally, we may also start to see a contagion
effect in the European CMBS market, caused by those investors in
these deals also demanding product backed by CRE located in
jurisdictions other than Italy.
Considering all of the above, it is therefore quite possible
that Italian and European legislators could have in fact hatched a
plan that may not only prove integral to the rehabilitation of the
Italian banking system, but also be positively revolutionary for
the re-emergence of European CMBS issuance.
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Under Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories ("EMIR")...
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