ECB asset-backed debt holdings fall even with renewed buying push

[LONDON] The European Central Bank's holdings of asset-backed debt fell for the first time since January, even as the bank steps up purchasing efforts to help boost regional lending.

The outstanding amount held in the ECB's asset-backed securities purchase program declined by 106 million euros(S$167 million) to 11.1 billion euros in the week ended Aug 28, the Frankfurt-based institution said Monday. A spokesman declined to comment on the drop in holding of bonds backed by mortgages to auto loans.

The decline is probably because the ECB can't buy enough new bonds to replace maturing debt, said Gareth Davies, head of European asset-backed securities research at JPMorgan Chase & Co.

The ECB's efforts to buy the debt, in order to remove risk from banks and encourage new lending, have been hampered by a lack of new issuance and an approval process that takes as long as five days.

"Negative purchases are another example of how difficult the ECB is finding it to operate in the ABS market," said London-based Mr Davies.

"While I fully believe it's more of a temporary hiccup than a permanent reduction in willingness to engage with asset class, it's still not a great headline."

The decline in January was the result of debt maturing, a spokesman said at the time.

European issuance of asset-backed debt has totaled 59 billion euros so far this year, compared with the 255 billion euros raised in the same period of 2006, the busiest year for sales, according to JPMorgan. It is up from more than 47 billion euros in the first eight months of last year.

The ECB has increased efforts to boost its holdings of asset-backed debt, which are about 10 per cent the size of covered-bond purchases under a similar program. Since June, the bank has targeted investors directly by having fund managers make unsolicited requests for securities, four people familiar with the matter said last week. They asked not to be identified because they're not authorised to speak about it.

"The ECB has demonstrated a pick-up in energy to buy ABS," said Anuj Babber, head of consumer securitisation at Prudential Plc's M&G unit in London. "However, without net new issuance this could lead to the universe of eligible assets diminishing over time, which would mean the run rate of purchases will decrease."

BLOOMBERG