CDOs/CLOs

The European primary pipeline is still, for the most part, defined by retained deals, although public placement of Unicredit HVB's SME CLO, Geldilux TS 2008-1, shows that for the right paper, investors will still pay up.

The beach was looking a lot better than the office last week for many ABS traders, who noted that the summer slowdown has sapped deal flow, removing any hope of liquidity picking up.

Ambac Financial Group posted second quarter earnings of $823.1 million, thanks in large part to mark-to-market gains on credit derivatives, the company announced this morning. Ambac Financial, the parent of bond insurer Ambac Assurance Corp., said it had mark-to-market gains of $961.6 million in the second quarter, helping it record a net income equivalent of $2.80 per diluted share. Net income in the second quarter last year was $173 million, or $1.67 per share.

Issuance of securities backed by commercial mortgages is in the longest lull in more than 10 years, according to Chris Lau, an analyst at Royal Bank of Scotland Group PLC's RBC Greenwich Capital.

The story remains the same in Europe. Much of what little public ABS deal flow there is continues to be retained for European Central Bank eligibility.

Moody's Investors Service said in a report that it expects further write-downs for the large European banks' structured finance portfolios resulting from continued widening in U.S. subprime RMBS spreads and deterioration in the credit quality of financial guarantors.

Citigroup probably will write down the value of CDOs by $8 billion this quarter, Mike Mayo, a Deutsche Bank analyst, wrote in a report to clients Tuesday after Merrill Lynch said it would sell CDO holdings for 22 cents on the dollar.

Merrill Lynch has planned a series of moves to improve its capital position, including the sale of problematic mortgage-related CDOs for $6.7 billion, according to yesterday’s release.

IndyMac Bank's failure, and the cleanup that followed, were shocking, but not unprecedented in the structured finance market.

The largest Spanish corporate default, Martinsa-Fadesa, a Spanish homebuilder, signals potential risks in SME portfolios, Deutsche Bank analysts said.