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European consumer ABS performance continues to weaken
Asset Securitization Report--SourceMedia (October 16, 2006)

Nora Colomer

Fitch Ratings announced the launching of its new rating methodology for European consumer ABS transactions that incorporates Fitch's Default VECTOR ABS model. It is the first time that a multifactor Monte Carlo simulation model is applied to European consumer ABS portfolios. The new approach also offers the latest portfolio risk measurement techniques to originators, arrangers and investors active in the structured finance area.

"VECTOR ABS treats different portfolios differently," said Heather Dyke, senior director at Fitch. "Inputs into VECTOR ABS are fully flexible and Fitch's assumptions can be overwritten by the user. This means the model can also be applied to carry out sensitivity analysis, or to determine consumer portfolios' risk with assumptions set under the Basel II framework."

According to Fitch, the further weakening in consumer ABS performance during the first half of this year can be attributed to the continued performance deterioration in U.K. credit cards. Fitch now considers the environment for U.K. credit cards as stressed. Losses for this asset class - both gross and net - has risen to 5.7% from 4.8%.

The performance of U.K. credit card transactions has deteriorated over the past 12 to 18 months. Charge-offs and delinquencies have increased, largely affected by increasing instances of personal bankruptcies and individual voluntary arrangements, (IVAs), as well as rising energy prices. Credit card securitization amounted to 1.4 billion ($1.7 billion), increasing 14% compared to the first half of 2005 and representing 24% of all issuance in the first half of 2006. Only three new transactions came to market in the first half of 2006. Morgan Stanley issued the Cumbernauld Credit Card Master Trust Series 2006-1, while MBNA Europe Bank issued the MBNA Cards 2006-A1 and the MBNA Cards 2006-B1 and 2006-C1 Series. Fitch said that the prospect of further issuance in 2006 remains uncertain as originators continue to focus on performance issues.

Total consumer ABS issuance in the first half of 2006 reached 5.8 billion, a slight decrease from the 6.4 billion reported in the same period last year. Portugal, which had previously held a fourth place standing, has over the year seen a rapid decline in issuance. In contrast, Germany, which now holds fourth place, has experienced an opposite trend in growth, Fitch said. ABS issuance in Italy more than doubled, to 1.2 billion in the first half of 2006, a 116% increase from figures recorded at the same time last year.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.



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