Issuance of Asset-Backed Securities Jumped to a Record $148B in Year
Elstein, Aaron, American Banker
Growing investor confidence spurred banks, specialty finance companies, and other businesses to issue a record amount of asset-backed securities in 1996.
About $148 billion worth of asset-backed securities were offered this year, according to Securities Data Co., up from $119 billion in 1995. The growth is striking, considering the market for these investments is barely 10 years old.
"Investors are getting comfortable with the market," said David Howard, senior director at Fitch Investors Service, a rating agency. "It's no longer new, esoteric, scary structured finance."
Asset-backed securitizations occur when a company assembles a group of similar assets on its books - such as credit-card receivables -and then pitches the package to investors. Issuers get their money right away, and buyers collect the principal plus some interest on what's considered a reliable investment.
Banks have been active issuers of asset-backed securities since the early 1990s, when they needed cheap sources of funding. This year, commercial banks issued $15.1 billion worth of these bonds.
Although just about any asset can be securitized, banks have historically offered investors blocks of credit-card receivables, auto loans, home equity loans, and student loans. This year, corporate loans joined the fray, as the United Kingdom's National Westminster Bank issued securities backed by $5 billion worth of corporate credits. The deal - the largest securitization ever - is expected to be copied by other banks.
"Banks have clearly started to use asset-backed securitization as a funding tool," said William J. Haley, a managing director at Chase Securities. …