1
Financial Institutions Group 6 Reasons for Optimism: 2018 Asset-Backed Security Market Outlook. Asset-backed security (ABS) professionals have reasons to be optimistic, according to Capital One’s annual market survey. The survey was taken at a time of stable credit standards, strong investor demand and a flattening yield curve, all of which contributed to strong returns in 2017. 1 Major interest in buy-side ABS “ Interest in asset-backed securities continues to grow as more investors enter the market each year. Dave Kucera Senior Managing Director, Head of Financial Institutions Group & Head of ABS Banking, Capital One 69% INCREASED 29% THE SAME 2% DECREASED 2 Uncertainty around regulatory requirements slightly down Forty-eight percent saw uncertainty around regulatory requirements as the most significant risk to their businesses in 2018 compared to 58% from 2017. Other top-of-mind concerns include increased credit risk (23%) and increases in interest rates (17%). 58% IN 2017 48% IN 2018 3 Underwriting standards expected to loosen More than half of ABS professionals surveyed are optimistic that underwriting standards will continue to loosen in the year ahead, compared to 46% in 2017. 30% TIGHTENED 54% LOOSENED 16% THE SAME 4 FinTech unlocks enormous potential As companies look to financial technologies to offer greater opportunity, industry professionals see the highest potential in alternative lending (31%) and infrastructure-based technologies, such as blockchain or API (30%). 31% ALTERNATIVE LENDING 30% BLOCKCHAIN/API 20% ONLINE AND MOBILE PAYMENTS 12% INVESTMENT MANAGEMENT/ADVISING 07% OTHER 5 Highest growth sectors The residential mortgage sector is predicted to continue on its current growth trajectory, attracting new players to this dynamic space. 16% UNSECURED CONSUMER LOANS 17% LEVERAGED LOANS 18% ASSET-BASED LOANS / FACTORING 34% RESIDENTIAL MORTGAGE FINANCE 6 Credit risk remains within bounds ABS professionals are more aware of potential credit risk in 2018 and slightly fewer respondents believe credit quality will improve or remain the same. Fiſty-eight percent have a positive or neutral outlook, as compared to 65% in 2017. “ The industry continues to remain aware of both the credit risks posed by the current lending environment and potential changes resulting from rising interest rates and tax reform. This dynamic landscape underlines the importance of working with a trusted financial partner who can provide experienced counsel during periods of change. Kevin P. Gibbons, CFA Managing Director, Head of Lender Finance, Capital One 58% IMPROVE OR REMAIN THE SAME 42% WORSEN Capital One’s Financial Institutions team is dedicated to the lender finance market and works with a wide variety of non-bank financial institutions and asset managers. Contact us today to discuss customized lending, advisory and financing products and solutions—including asset securitization, recourse financing and interest rate hedging. Capital One conducted a proprietary survey of conference attendees at SFIG 2018 from February 26-27, 2018 in Las Vegas, Nevada. Survey respondents included professionals from across the asset-backed securities industry. Percentages are based on 151 responses. Securities products and services are offered through Capital One Securities, Inc., a non-bank affiliate of Capital One, N.A., and Capital One Bank (USA), N.A., a wholly owned subsidiary of Capital One Financial Corporation and a member of FINRA and SIPC. The products and services offered or recommended are Not insured by the FDIC, Not bank guaranteed, Not a deposit or obligation of Capital One, and May lose value. Banking products and services are offered by Capital One, N.A., Member FDIC. ©2018 Capital One. capital.one/financialinstitutions
