The European Central Bank has suspended buying bundles of loans backed by
Volkswagen assets as it reviews the financial implications of the scandal
engulfing Germany’s biggest carmaker.
The plunge in VW shares by almost a third in 10 days has prompted the
central bank to review whether to bar VW paper from its bond purchase
programme.
Such credit reviews are a routine part of the ECB’s efforts to protect
taxpayers as it rolls out its scheme to buy asset-backed securities, which
began in November last year.
But the fact that VW, one of Europe’s biggest issuers of debt, is under the
microscope underlines the severity of the problems faced by the group, and the
potential knock-on funding effects of the scandal.
Shareholders raced to offload VW stock last week after US regulators
revealed that the company rigged US emissions tests for its diesel cars by
using so-called defeat devices. The allegations forced the departure of VW’s
chief executive and rocked Europe’s carmaking industry.
Results from the ECB review are expected as soon as this week and insiders
said the exclusion of VW from the ECB’s bond buying was not a forgone
conclusion.
While the risks to VW’s creditworthiness have increased markedly in the
wake of the allegations, German public bodies remain big shareholders in the
group, reducing the danger of default.
The ECB declined to comment. The central bank’s programme buys assets, from
mortgages to car loans, that have been bundled together through a process
called securitisation. Frankfurt sees such purchases as a way to boost lending
in Europe because asset-backed securities are a source of funding for banks.
Securitisation markets have struggled to recover since the 2008 financial
crisis and the lack of issuance is one of the main constraints on the ECB
bond-buying efforts. As of mid-September, the ECB had bought just under €12bn
of asset-backed securities, an intervention dwarfed by the central bank
programmes to buy covered bonds and sovereign debt.
(Financial Times
)