French securitisation ruling likely to be delayed further

The French banking regulator, Commission Bancaire, caused a furore when it released a bulletin in April this year stating that all investors in the subordinated tranche of a securitisation, which it defined as anything below an A- rated tranche, would be required to deduct the holding against capital, where previously they needed to hold 20% capital.

Following considerable pressure from French banks, the Commission Bancaire agreed to issue a formal bulletin clarifying its position by the end of May. However, this has yet to be released, and market commentators now believe that, with many people taking holidays in August, the announcement could be pushed back until September.

But analysts said some progress has been made, and the Commission has agreed to change its previous definition of the subordinated tranche as anything falling below a BBB- rating, from the previous A-.

Yet French banks have not, by all accounts, found this satisfactory, and want it lowered to BB. Their argument, according to Alexander Batchvarov, head of international structured credit research at Merrill Lynch, is that the BB tranche of a securitisation should be subject to the same requirements as corporates. Currently investors in corporates only need to deduct capital against BB rated loans.