14 May 2012

FN: Regulatory crackdown hurts company securitisation

Corporate securitisation sounds like the ideal solution for companies who want to reduce their reliance on bank lending and diversify their financing strategy. A company can securitise its future earnings to get its hands on cash today.

Despite the fact that corporates are encouraged to move away from sole reliance on bank funding, corporate securitisation is not necessarily the easiest option, according to Simon Gleeson, partner at law firm Clifford Chance.

He said: “There are no buyers [of corporate securitisation]. The problem is that regulators are changing the capital rules to make it hard for banks, insurance companies and pension funds to hold securitised products. We would have expected to see more activity had it not been for that regulatory intervention.”

Basel III imposes new capital rules for banks, while Solvency II will introduce higher capital charges for European insurers and pension funds for assets including securitised products.

Earlier this month, Fitch Ratings warned that new regulation would hit the European securitisation market hard, driving away investors and delaying the market’s recovery.

The answer to investors’ lack of confidence could lie in a kitemark scheme involving a minimum standard for a safe securitisation, suggested Gleeson. Indeed, the Association for Financial Markets in Europe and the European Financial Services Roundtable are delivering a brand new kitemark scheme for high-quality asset-backed securities to help bring the market back to life. However, even a kitemark has its problems. Gleeson warned: “The public tends to be against kitemarks because if the securitisation were to fail, investors might claim taxpayer compensation”.

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