Fitch: Too Early for "Green Shoots" in European Structured Finance Performance
Fitch Ratings-London-15 July 2009: Fitch Ratings says today that it
is too early to identify 'green shoots' of recovery in European structured
finance performance, despite signs that the global economy is stabilising.
Fitch expects headline economic growth to become evident during the
last two quarters of 2009, but that the nature of the recovery will
be weak and remain significantly below long term growth trends.
"Unemployment is the most significant negative factor weighing
on existing European structured finance assets," says Ian Linnell,
head of structured finance for EMEA at Fitch. "With the unemployment
rate across the euro area set to continue rising in 2010 and remain
close to those highs in 2011, Fitch anticipates downward pressure on
structured finance assets to remain in place until late 2010 or 2011.
However, the pace and intensity of downgrades are likely to slow reflecting
the impact of previous negative rating activity as well as the economy
stabilising and the start of an anaemic recovery."
"Drastic cuts in interest rates have taken the pressure off consumers regarding the affordability of their substantial debt burden in the short term," says Philip Walsh, Managing Director in the European structured finance group at Fitch. "This has supported some arrears performance stabilisation in RMBS and consumer securitisation transactions; however the effect of rising unemployment is expected to eventually outweigh this and render this stabilisation a temporary respite."
In its quarterly EMEA structured finance Outlook report published today, the agency notes that interest rate easing has also helped to stabilise UK house prices. UK house price indices suggest value declines are bottoming out and house prices may have even started to rise after a peak to trough decline of 19% to date. However the weak recovery and rising unemployment mean house prices are likely to resume their downward trajectory. An overall 30% peak to trough house price decline remains Fitch's central case expectation in its UK RMBS ratings.
Elsewhere in Europe, house price indices may lag the true extent of value decline and therefore overstate the recoveries that can be achieved on enforcement. As arrears and enforcements rise, loss severities are also therefore expected to rise.
The report, entitled "EMEA Structured Finance Sector Outlook - Too Early for 'Green Shoots'" provides detailed country-by-country asset class Outlooks and is available at www.fitchratings.com.
Contact: Philip Walsh (ABS/RMBS), London, Tel: +44 20 7417 3566; Euan Gatfield (CMBS), +44 20 7417 6306; Jeffery Cromartie (Structured Credit) +44 20 7664 0072; Jaime Sanz (Emerging Markets), +44 20 7682 7279.
Media Relations: Julian Dennison, London, Tel: +44 020 7682 7480, Email: julian.dennison@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.