International Financing Review: SFIG Conference Gets Bigger Than Ever

SFIG Conference Gets Bigger Than Ever
International Financing Review
Joy Wiltermuth
28 February 2019

A cooling US economy did little to dampen the upbeat tone of this year’s ABS conference in Las Vegas, which a decade after the financial crisis has grown into a bigger affair than ever before.

Attendance at the four-day gathering set a new record of 8,050 for the industry, up from about 7,500 initial registrants, according to organizer the Structure Finance Industry Group (SFIG).

Even author Michael Lewis was there as a keynote speaker, some nine years after putting the conference on the map with his subprime mortgage crisis best-seller, The Big Short: Inside the Doomsday Machine.

“I thought the tone was constructive and positive,” said one syndicate banker upon his return to New York. “There was nothing people were really worried about.”

While former Federal Reserve Chair Janet Yellen warned conference-goers of corporate distress, she was sanguine about the health of US consumers.

“I am not worried about households with respect to leverage and debt,” Yellen told a standing-room only audience that was closed to the press.

“Households are in good shape.”

BRIGHT PATH

Michael Bright, new SFIG CEO and president, made use of a press luncheon on Tuesday to outline his vision for a more accountable securitization industry to consumers it finances and the US economy.

“I don’t think a financial crisis is coming,” Bright said at the conference - his first at the helm.

“But I’d love to be a part of making sure that it never does come.”

Securitization had been an uneventful corner of consumer finance for decades until the run-up to the financial crisis, after which the government was forced to step in to the rescue.

Securitization funded about 53% of consumer credit as of the third quarter, according to Moody’s. But its share dropped to only about 7% once government-backed bonds were stripped out of the equation, a nod to the lasting role of taxpayer support 10 years since the crash.

“I think this needs to be a group where, when people see burgeoning risks inside of the system, we can communicate in a safe-space with each other and try to sort it out,” Bright said.

“There are other trade associations that are just knee-jerk defensive of their industry,” he said. “I want to lean in on these challenges when we see them bubbling up.”

EYE ON DATA

For years now the US securitization industry has benefited from a strong economy, rising home prices and low unemployment at its back. But there may be signs of cooling after one of its longest periods of economic expansion.

While US gross domestic product rose 2.6% at an annual rate in the last three months of 2018, it was significantly lower than the growth seen earlier last year, according to Bureau of Economic Analysis data.

Concerns about the cycle kept S&P’s chief economist Beth Ann Bovino busy at the conference fielding questions about the timing and likelihood of a US recession - and how bad things could get.

“It depends on the investor though,” Bovino said on the conference sidelines. “There are some saying they think the markets are over-reacting.”

S&P sees only a 20%-25% chance of a US recession in the next 12 months and expects only one - potentially two - additional rate hikes this year from the Federal Reserve.

Following December’s market swoon, Fed Chair Jerome Powell signaled that the central bank would take a patient approach to raising rates in the future.

The more dovish tone has helped ABS reclaim lost ground since the start of the year, with many sectors now near the middle of their 12-month trading ranges, according to Bank of America Merrill Lynch data.

ABS volumes this year were US$38.91bn heading into the conference, down from US$42.57bn for the same period last year, according to IFR data.

But jitters remain around corporate debt and CLOs, which could see fallout from the leveraged lending boom of the past few years, if and when the cycle turns.

“Nobody is ignoring the fact that something is potentially coming down the pike, whether it be a recession or even just muddling through slower growth and what that looks like,” said S&P’s James Manzi, who oversees structured finance research.

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