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European RMBS market heads into unknown territory

The European residential mortgage-backed securitization market has all but disappeared, and no one knows what the landscape will look like when investors and issuers return in January.

A raft of bad news brought the traditional Christmas break forward by a month, and very few issuers are even considering attempting deals until after the New Year. In addition, the onset of Basle II will remove much of the capital benefit of RMBS issuance over, say, covered bonds, and force the product to compete on funding costs and diversification alone. Some securitization bankers doubt that the RMBS market will ever return to levels seen in past years, and say that come January there will be far fewer issuers than before.

But one deal that priced at the end of October has helped boost market sentiment. GMAC-RFC Nederland, the Dutch mortgage lending arm of GMAC, priced a €703 million RMBS that was acclaimed as the first step towards the recovery of the European RMBS market. Although the market has subsequently shut down, the success of the deal proved that getting something done in the radically changed RMBS funding environment is possible, which will be an encouragement to other issuers when investors return in a month’s time.

The deal was sold to 20 investors, making it widely placed compared with other RMBS transactions priced since the summer. Over 90% was pre-placed. This was because the leads on the deal – Royal Bank of Scotland, Deutsche Bank and ABN Amro – were aware of the damage caused by deals that have to be pulled after pricing because of lack of demand. An example of this is the recent postponement of Anglo-Irish Bank’s mortgage-backed covered bond, caused by the suspension of market-making for the second time since the credit crunch. Now banks are doing more groundwork than ever preparing and marketing deals, some of which are not coming into the public markets.

"The view is that everything is now done on a private basis," said a banker close to the GMAC deal. "Any deal that does get pulled makes the market very shaky."

The market is shaky enough already. The spread on the triple-A tranche of the GMAC deal was priced at around 50 basis points, which means that GMAC paid more than four times what it did for a similar issue in March.

"The GMAC RMBS was a damned good deal," said one banker. "It had a huge impact. It proved that something can get done."