EMEA Structured Finance Outlook Almost Universally Negative

The outlook for almost all Residential Mortgage-Backed Securities (RMBS), Commercial Mortgage-Backed Securities (CMBS) and Asset-Backed Securities (ABS) structured finance asset classes in Europe, the Middle East and Africa (EMEA) remains negative, Moody’s Investors Service says in a new Special Report.

The rating agency’s expectation is that further quarters of GDP contraction and rises in unemployment in all the countries covered in this study lie ahead and that asset performance will continue to react to macroeconomic trends with a delay.

“Moody’s sector performance outlooks for RMBS, ABS and CMBS in the EMEA region remain unchanged from our previous update in January 2009. The only asset class without a negative outlook is Turkish Diversified Payment Rights, which has a stable outlook,” explains Nitesh Shah, a Moody’s Economist and author of the report.

Moody’s believes it is too soon to change the negative performance outlooks on most segments and cautions that, in the event of a slow recovery, asset performance trends could still prove disappointing even amid a steady pickup in macroeconomic conditions.

Since Moody’s previous update, the negative performance outlooks in certain sectors have been reflected in actual rating downgrades on certain transactions. Although some downgrades had been prompted by a change in Moody’s methodology, the downward pressure on the ratings in question ultimately reflected a deterioration in performance combined with an improved mechanism to capture the deterioration.

Given the level of uncertainty that persists, those sectors that have already undergone formal reviews and have had rating upgrades or downgrades as a result are not necessarily exempt from experiencing further rating changes. Moody’s is continually assessing macroeconomic developments and asset performance and will comment on its views in its regular index reports.

For details, see EMEA RMBS, ABS & CMBS Asset Performance Outlooks, July 2009.