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Impact Investing

IPE special report May 2018

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Taking the sugar out of the alphabet soup

Jeroen Dijsselbloem has been taking sweeties away from the finance industry again. The Dutch finance minister and Eurogroup president has told pension funds not to expect the same inflation premium on future PPP projects that they enjoyed on the N33 motorway deal.

That set ABP and PFZW howling. They insist that the premium is what makes these projects viable, and thought the government was desperate enough for their capital to make the N33 a template.

But Dijsselbloem has form here. He’s tired of private capital taking the gains from Europe’s economy, while governments retain most of the risk. He voiced his displeasure when the senior bondholders of SNS Real escaped his grasp back in January, and his approval when those of Laiki Bank got zapped in March.

And yet he has welcomed as “very important” the suggestion by Kees van Dijkhuizen, CFO at ABN Amro, that bonds should be issued by a state mortgage institution for Dutch pension funds. The idea is to give them a risk-free return somewhere between government bonds and current securitisations. The state gets the mortgages if an originating bank fails, but remains exposed should the underlying mortgages default.

Rather like the EC’s recent Green Paper that criticised using banks and “excessive leverage and maturity transformation” to finance long-term capital formation, Dijkhuizen pointed to the €460bn funding gap between Dutch bank deposits and mortgages – currently financed via wholesale money markets.

One can see why Dijsselbloem would want to plug that hole with pension fund money – the taxpayer might have to plug it in a banking crisis, otherwise. But why would he consent to pension funds taking a slice of the gains while the taxpayer sits on all the risk – especially in a triple-dip recession with slumping house prices? Well, he hasn’t consented. Welcoming the idea, he encouraged banks, insurance companies and pension funds to discuss how the risks should be shared. It seems unlikely that they’ll be shared in the way Dijkhuizen envisaged.

This is the difficulty weighing down on all of Europe’s securitisation markets. Technocrats understand that securitisation can attract real money for investment – the Green Paper recommended more of it, and Mario Draghi backs an SME loan ABS market – but after the traumas of 2008 they also worry that the risks should be held in the right places.
Government backing, implicit or explicit, is now out of the question – which is why we see securitisation-killing regulation like Solvency II and the ‘skin in the game’ and capital requirements of Basel III.

Is there a middle ground, in which regulation eases to enable real money to take some ABS risk? Probably, but that real money has to read between the lines of statements like the Green Paper. Europe is moving towards Dijsselbloem’s position, not away from it. Sweet infrastructure deals and risk-free mortgage upside are a thing of the past.

 

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