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No Joy on the Securitization Market Forecast for 2010
That sigh of relief you hear is the asset-backed securitization market thanking its lucky stars for the federal government.
Without the Treasury Department’s Term Asset-Backed Securities Loan Facility, more commonly known as TALF, the ABS market would have been as busy as a roller coaster in a snowstorm. Instead, the ABS market has posted a respectable year, generating about $130 billion of issuance so far, and with spreads and cash-investor demand both rallying.
And in 2010? JP Morgan Chase & Co., in its 2010 ABS market forecast published today and obtained by BankInnovation.net, says the ABS market supply should be about flat at $140 billion next year — a far cry from the ABS market’s heyday of $900 billion in 2006. As JPM put it, “The heyday of the ABS market is not coming back, and our $140 billion projections is in line with the pre-subprime mortgage book years of the early 2000s.”
Part of the reason why JPM is projecting a flat 2010 is because the TALF program is scheduled to end on March 31, 2010, and end it will, predicts the investment bank. Another point:
In addition, issuance activity will shift away from major banks to finance companies. This translates to continued contraction of the Bankcard sector, and growth in Auto-related securitizations. … Net issuance (i.e., gross supply minus maturing bond amount) will remain sharply negative. We estimate net 2010 supply contraction of $170bn due to decreased use of securitization as a funding source by major banks and the sustained decline of subprime lending.
Indeed, JPM’s forecast makes one dynamic perfectly clear: there will be zero subprime mortgage ABS in 2010, just as there was zero issuance for such assets in 2008 and 2009. And to think, back in 2006 $559 billion of subprime mortgages were packaged into asset-backed securities. Oh, how times have changed.
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