Is state backing mezzanine ABS worth it?

The clear German negative contrasts with the attitude of countries like Spain, who is willing to guarantee SMEs’ ABS if some other eurozone country does. This agreement seems complicated.

“It would be desirable that each country would give this additional guarantee to the financial sector, but this would ultimately be some sort of mutualization of the euro debt, something that the Germans don’t want, claiming that it is not constitutional,” explains fixed income analyst at Renta 4 Oscar Moreno.

“It makes sense that countries like Germany are reluctant to back riskier ABS since they would put them in a disadvantage position,”  says analyst at Eurodeal Jaime Pérez España. “they would be in disadvantage if the states back a structural deficit between German and Spanish SMEs.”

Spanish Economy Minister Luis de Guindos said Spanish securitizations would not be in disadvantage. though.

Until this mezzanine tranche dilemma is solved, Mario Draghi will launch the purchase of higher-quality ABS. According to Santander strategy team, “with the ABS new definition (according to 16 criteria, and on the basis of different types of risks), the ECB means to make ABS more attractive to non-financial investors, including pension funds and management firms”.