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Spanish banks creating riskier ABS for ECB -Fitch

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MensajePublicado: Lun Ago 25, 2008 1:12 pm    Asunto: Spanish banks creating riskier ABS for ECB -Fitch Responder citando

Spanish banks creating riskier ABS for ECB -Fitch

LONDON, May 27 (Reuters) - Spanish banks are employing riskier structures than previously for asset-backed bond issues created as collateral for borrowing from the European Central Bank, Fitch Ratings said on Tuesday.

In addition, the majority of issuers are only using a rating from one agency for these deals, rather than from two or three as previously, raising further concerns about the quality of the instruments, the credit ratings agency said.

Concern has been growing that the European asset-backed securities (ABS) market has become dependent on the ECB, which accepts the securities as collateral for liquidity.

Yves Mersch, a member of the bank's governing council, said recently the ECB was looking at the quality of collateral, labelling it a "matter of high concern". [ID:nL16398572]

Fitch said Spanish banks' use of ECB liquidity had risen to 47.6 billion euros ($75.04 billion) in April 2008, versus 19.1 billion euros a year earlier. Banks have been driven to make greater use of central bank borrowing after the credit crunch led inter-bank lending markets to dry up last summer.

"The ECB is driving changes in Spanish securitisation transactions," Fitch analysts said in a statement.

They said some residential mortgage backed securities (RMBS) were based on mortgages with higher loan-to-value ratios, making them more risky. In other sectors, there were higher levels of borrower concentration and exposure to higher risk sectors, such as real estate and construction, the agency said.

Also, "given the current ECB rating requirements, most Spanish structured finance transactions issued since the end of last year have also been executed with a single rating. This compares to two, and sometimes three ratings, assigned to transactions under normal market conditions," the agency said.

"Fitch believes that this trend has weakened credit enhancement in transactions, as originators only need to meet the credit enhancement feedback of a single agency -- generally the agency with the lowest thresholds."

Fitch said in some cases it had not been selected to give a rating, or had itself chosen not to proceed with a rating.

However, the agency noted that most Spanish deals in recent months had been structured so that they could be unwound by the banks and the underlying collateral used for a new deal with a different structure. (Reporting by Richard Barley; Editing by Paul Bolding)
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