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What to watch in 2025 for European Capital Markets

05/02/2025
10

2024 demonstrated the true resilience of capital markets globally. Despite a backdrop of economic uncertainty, political change, and regulatory challenges, the sector demonstrated its ability to adapt and innovate. 

European capital market performance exceeded expectations, with secured product issuance up by 6% in the first three quarters compared to the same period in 2023.  For Lenvi Standby Servicing, it was also a year of significant growth and activity. Assets under management surpassed £40 billion by year-end, an impressive increase of £10.3 billion over 2023. Across the year, 59 contracts were secured, spanning both UK and international markets. Notable financial product areas included the expanding ABS sector, where we supported eight public transactions, such as BeeQuip’s landmark deal with Apollo (NYSE: APO). Other key areas of focus included motor finance and SME finance, reflecting the breadth and diversity of our engagement in the market. 

2024 wasn’t just about weathering challenges; it was also a year of new directions. Most notably for Lenvi, we supported our first public credit card securitisation and, in a shift toward more sustainable investing, our first private solar panel securitisation. Signalling a market prepared to adapt and seize opportunities even in uncertain times. 

Looking ahead to 2025 

As we move into 2025, the general theme across European outlooks is one of stability. Fitch Ratings described 2025 as a “neutral” year for many markets; a marked improvement from previous predictions and hopefully provides a solid foundation for growth and breeds optimism across the market.  

While stability might be the buzzword for 2025, capital markets remain anything but boring! As regulatory and policy changes take affect through the US and Europe, market players will need to pay attention and keep their strategies flexible. From game-changing plays in sports finance, to the surging wave of NAV loans across Europe, this year promises trends that'll keep us firmly on our toes.  

Below, we outline just some of the key themes that we believe will characterise the year ahead. 

What to watch 

Regulatory impacts 

Going into 2025, one of the most talked about regulatory impacts is  felt across the UK motor finance sector. The sector continues to face uncertainty following the Court of Appeal ruling mandating greater transparency in broker commissions. While the Supreme Court is set to hear an appeal in April 2025, these adjustments have created significant uncertainty among motor finance providers going into the new year, with potential ripple effects across other broker-led markets such as second-charge mortgages and bridging finance.  

In contrast, the European auto finance market remains resilient and shows potential for continued growth, suggesting the potential regional divergence in how these sectors are likely to perform while UK uncertainty remains. 

AI 

Artificial intelligence remained a major focus in 2024, with growing investment and adoption across industries, particularly in capital markets where AI is transforming areas like risk assessment, underwriting, and investor analytics. While enthusiasm remains high, the key question for 2025 is whether these investments will translate into to scalable, practical applications that deliver sustained value. But the landscape is rapidly evolving, as evidenced by the recent entry of Chinese AI assistant, DeepSeek. This new player has already generated significant discussion and could potentially disrupt the market and impact growth and adoption rates of AI applications across global markets, with potential ripple effects to be felt throughout the capital markets sector. 

IPOs 

IPO activity slowed in 2024, with listings falling to their lowest volume since 2010, according to EY’s latest research. Meanwhile, the total value of IPOs surpassed that achieved in 2023. Indicating a cautious but focused market during 2024, where only the strongest or most strategically positioned companies proceeded with public offerings. 

Moving into 2025, the potential IPO of Klarna has become a focal point, fuelling optimism that this year could mark a resurgence in public listings. Yet, the question of where Klarna will choose to list remains unresolved. While an EU exchange might seem a natural fit, the company’s draft registration with the US Securities and Exchange Commission (SEC) and its recent establishment of a UK holding company have left the decision open. A US listing, alongside the recent news that 88 companies delisted from LSE during 2024 - including Just Eat, which cited costs and administrative burdens as key drivers for leaving the market - could intensify debate about the competitiveness of UK and EU exchanges as companies weigh regulatory and investor considerations globally. 

However, initiatives like the UK Government’s proposed PISCES platform, which aims to facilitate the regulated trading of private company shares to a broader pool of investors while offering valuable tax exemptions, could help revitalise the market and strengthen its appeal to both domestic and international businesses. 

Sustainability  

Sustainable finance continues to gain traction, exemplified by the EU’s first ESG public securitisation late last year. This landmark deal reflects a growing focus on ESG principles in capital markets.  

However, the US withdrawal from the Paris climate agreement under the Trump administration may shift previously predicted dynamics in the global sustainability market for 2025. This development is a significant shift on the road to achieving global sustainability goals. However, this move could potentially open opportunities for other markets, particularly in the UK and Europe, if firms seeking strong ESG credentials look instead to UK and European markets for their sustainability-focused initiatives.  

Consequently, this could lead to a redistribution of green finance activities and potentially strengthen the position of European exchanges in the global sustainability landscape.  

The evolving situation also raises questions about the future of ESG securitisations in the US market. We wonder how the new head of the Department of Government Efficiency and owner of $1.4 trillion EV company, Tesla, felt about this move… 

While uncertainty remains, it's clear that the global response to these changes will play a crucial role in shaping the sustainable finance sector in the coming year.

Crypto 

Following Donald Trump’s victory in the 2024 US presidential election, cryptocurrency markets experienced a notable surge, reflecting market optimism over his historically favourable stance toward digital assets. With the possibility of crypto-friendly appointments to key regulatory bodies such as the Securities and Exchange Commission (SEC), investor confidence has grown. As the new administration takes shape, the question remains whether this momentum will hold or whether the complexities of policymaking might temper market enthusiasm. 

UK RMBS 

UK residential mortgage-backed securities (RMBS) have been a consistent stronghold; going into 2025, we are hopeful the trend for RMBS can be sustained in a stabilised environment. Additionally, the growing potential for public securitisations in bridging finance going into 2025 presents further opportunities for growth in this space. 

However, there are some areas of concern, particularly regarding pre-financial crisis mortgages. These older mortgage pools are experiencing deteriorating performance due to the higher interest rate environment. The proportion of borrowers in pre-GFC transactions in arrears has been persistently climbing, largely because these mortgages are predominantly on variable rates and borrowers are unable to refinance. The impact is expected to be minor, but we may see default rates increase for these pre-crisis mortgages. 

Significant Risk Transfers (SRTs) 

Significant Risk Transfer (SRT) transactions are emerging as a rapidly growing segment of the financial markets. These transactions allow banks to transfer credit risk of a portfolio of assets to a third-party investor - operating as a risk management tool for banks. The SRT market is expected to expand significantly, particularly in US markets (which currently sit behind more mature European SRT markets) as US banks adapt to rising capital requirements and economic pressures.  

Middle Eastern Capital Markets 

Behind the front-page real estate of the Trump administration, the Middle East is gaining significant attention in global capital markets going into 2025, with the GCC region showing potential for growth. However, specific developments and their impact on the broader market remains to be seen.  

Concluding thoughts 

2025 holds the promise of continued evolution for capital markets – but it is not a time to become complacent. Sustainability, technological innovation, and global connectivity are driving key trends, and the market’s capacity for adaptation will once again be tested.  

For Lenvi standby servicing, 2025 has kicked off with the same momentum that propelled us through to the end of 2024. We are already seeing these market trends unfold, with numerous opportunities emerging across our established markets and in exciting new sectors and asset classes in the UK, Europe, and the US. 

Taken altogether, the year ahead looks set to be exciting and full of change, and I’m looking forward to working closely with our partners—both new and existing—along the way. 

Want to understand more about Lenvi Standby Servicing?

Contact us today to speak to our capital markets expert team. We're the number one standby servicer in the UK, isn’t it time we stood with you too?

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