Dirección General del Servicio de Estudios THE SECURITISATION MARKET IN SPAIN: PAST, PRESENT AND FUTURE Roberto Blanco Head of the Financial Studies Division (DG Economics, Statistics and Research) WPFS WORKSHOP ON SECURITISATION Madrid MAY 2010

OUTLINE OF THE PRESENTATION  The pre-crisis period (2000-August 2007)  Substantial expansion of ABS and covered bonds  Main charateristics of the products  Driving factors of the expansion  The crisis period (since August 2007)  Quantities  Prices  Main factors  The perspectives  Concluding remarks 1

ABS AND COVERED BONDS EXPANDED SUBSTANTIALLY IN SPAIN BETWEEN 2000 AND 2007 Q2 2

SPAIN BECAME ONE OF THE MAIN EUROPEAN MARKETS FOR ABS AND COVERED BONDS 3

ABS VS COVERED BONDS 4

DISTINCTIVE FEATURES OF SPANISH SECURITISATION  Simple products  No CDO, CDO squared  No synthetic securitisation 2. Less conflicts of interest between originators and investors  Originators retained the equity tranches 3. Comparatively higher transparency and investor protection  Prospectus  Registry at the CNMV  Legal framework for mortgages 5

CREDIT RISKS WERE NOT TRANSFERRED WITH ABS 6

COLLATERAL. ABS VS COVERED BONDS 7

FUNDING WAS THE MAIN FACTOR FOR THE EXPANSION OF ABS 8

AFTER THE SUMMER OF 2007 PUBLIC ISSUANCE OF ABSs FELL EVERYWHERE 9

WHEREAS COVERED BOND ISSUANCE WAS MORE RESILIENT 10

IN TERMS OF PRICES THE IMPACT OF THE CRISIS WAS ALSO LESS STRONG FOR COVERED BONDS 11

FACTORS FOR THE WORST PERFORMANCE OF ABSs AT THE INTERNATIONAL LEVEL 1. Lack of investor confidence for ABSs  Lack of transparency regarding underlying assets  Conflict of interests between originators and investors  Exit of SIVs and ABCP conduits  They played a crucial role in transforming maturities in ABSs 3. Market liquidity 4. Uncertainty regarding credit quality 12

THE PERSPECTIVES: DEMAND KEY FACTORS:  Uncertainty regarding credit quality  Investor confidence in the products  Liquidity in the secondary markets For (1), the macroeconomic and financial developments will play a role For (2) and (3) current private and public iniciatives to re-establish securitisation on a sounder basis will help 13

THE PERSPECTIVES: SUPPLY 14

CONCLUDING REMARKS The pre-crisis levels will not (and should not) be reached in the medium term Lower demand: SIVs and conduits will not (and should not) return Lower suppy: deleveraging of the financial and non-financial sectors But some recovery from the current low levels seems desirable since securitisation can play some important economic roles (not played by covered bonds) Credit risks can be transferred (diversification) No maturity mismatch Wider collateral (SMEs) Tranching Main challenges: Restore investor confidence Improve market liquidity Current private and public iniciatives to re-establish securitisation on a sounder basis are welcome 15

THANKS FOR YOUR ATTENTION DG Economics, Statistics and Research