European toxic assets suffered less than a tenth of the defaults of their US counterparts through the financial crisis, suggesting investors were too hasty in tarring structured products in different regions with the same brush.
The data, in a study by Standard & Poor’s, come as the industry is trying to re-open after virtually freezing in the summer of 2007 as concerns about the high levels of defaults on the US subprime loans that backed many transactions led investors around the world to panic about their possible exposure.
But in the two-and-a-half years to the end of 2009, just 0.39 per cent of European deals have defaulted, the ratings agency said, compared with a rate of 4.3 per cent in the US.
The study, which covered €1,858bn ($2,540bn) of issuance, also showed that 12.4 per cent of European deals have suffered a rating downgrade against 40.6 per cent in the US.
Most of the European losses have been concentrated among collateralised debt obligations rather than more straightforward securitisations.
“It’s very important to distinguish between different market segments,” said Andrew South, analyst at S&P. “Credit performance has diverged significantly across asset classes. For example, consumer-backed European transactions have generally performed far better than those backed by corporate credit risk.”
CDOs – pools of different sorts of debt, funded by new bonds – accounted for less than a quarter of the total European market by mid-2007, but they represented almost 90 per cent of defaults and 60 per cent of downgrades.
European residential mortgage-backed securities, the single biggest market in the region, saw a downgrade rate of 2.4 per cent compared with 47.3 per cent for the US market.
Fully reopening the securitisation markets is considered essential to bolster economic growth by freeing banks to lend more. The market rally of the past year has brought borrowing costs back to levels where for some lenders, the deals are becoming economically viable once more.
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