For Germany, the second-largest market in terms of issuance volume, transactions and issuance volume has been stable, equalling that of a year ago (four deals issued, totalling EUR4bn). However, the breakdown per asset class has changed, with no CMBS issued so far (Q107: two issued) and a 100% market share in Q108 for the ABS sector (four deals). "We anticipate this trend to continue, as the German market is mainly driven by the ABS sector," says Emmanuelle Nasse Bridier, head of Structured Finance Continental Europe team.
Activity in Italy has remained very high on all asset classes despite a limited number of public transactions closed so far (three transactions for a EUR1.6bn issuance volume versus five transactions for EUR6.7bn in Q107). Fitch has noticed a significant level of activity in the private sector, driven by "club deals" leading to the transfer of portfolios of assets to a limited number of final investors and to the development of refinancing structures involving warehousing facilities. RMBS transactions also appear to have been postponed for the second half of the year, leading Fitch to expect active third and fourth quarters in terms of new issuance for this market.
Due to the current market conditions, Fitch anticipates that most notes issued shall continue to be purchased by banks and used as collateral for repo agreements with central banks. The agency also noticed an increasing number of market participants ready to test the appetite of final investors. Following the German example, ABS and auto ABS transactions seem to be the favourite asset classes in continental Europe.
In terms of credit risk, Fitch will continue to closely monitor the evolution of the performances of Spanish RMBS transactions. Following actions recently taken (13 Outlook changes from Stable to Negative and two downgrades), the agency performs an ongoing review of the performances of these transactions.
Over the last six months, Fitch has also noticed an evolution of the risk profiles of some of the residential mortgage pools recently analysed. These pools are generally more concentrated in sub-segments of the mortgage market clearly identified by the agency as riskier, due to the feature of the loans or borrower profiles (please see Fitch publication "Spanish Residential Mortgage default Model Criteria", dated 20 December 2007 and available on www.fitchratings.com). Reflecting this trend, capital structures of RMBS transactions recently rated by Fitch provide rated tranches with higher credit protection.
