CDOs/CLOs

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Lehman Brothers 35,795.4 1 10.2 84 Countrywide Securities Corp 31,733.9 2 9.1 50 Royal Bank of Scotland Group 30,204.5 3 8.7 75 Credit Suisse 27,350.7 4 7.8 72 Morgan Stanley 27,249.1 5 7.8 28 Deutsche Bank AG 25,353.1 6 7.3 54 Merrill Lynch & Co Inc 20,888.8 7 6.0 35 Bear Stearns & Co Inc 20,420.3 8 5.9 66 Goldman Sachs & Co 19,000.7 9 5.5 40 JP Morgan 17,207.5 10 4.9 38 Industry Total 348,552.8 - 100.0 675 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup 7,390.8 1 18.0 10 Deutsche Bank AG 6,320.7 2 15.4 9 Goldman Sachs & Co 3,809.3 3 9.3 5 Merrill Lynch & Co Inc 3,420.1 4 8.3 3 Banc of America Securities LLC 3,418.5 5 8.3 5 Credit Suisse 3,306.5 6 8.1 6 Lehman Brothers 2,834.1 7 6.9 2 Morgan Stanley 2,568.2 8 6.3 3 Wachovia Corp 1,610.0 9 3.9 1 RBC Capital Markets 1,500.0 10 3.7 2 Industry Total 41,000.5 - 100.0 31 Source: Thomson Financial

auto ABS 9% credit card ABS 8% enterprise finance 0% equipment ABS 2% real estate ABS 70% structured settlements 0% student loan ABS 9% trade receivables 1% utilities ABS 0%

One-by-one various market players have come forward in recent weeks with predictions of slowing - in some cases negative - home price appreciation (HPA) in coming quarters. While actual HPA information varies depending on the source, and typically lags several months behind, both anecdotal and futures market information back up a prediction of slowing ahead. For example, the one-year futures-implied HPA on the Chicago Mercantile Exchange Composite Index has fallen in recent weeks to -4% HPA from 0%.

It took nearly seven years for the banking industry to hash out proposed revisions to the Basel Capital Accord and get the Federal Reserve to approve them. Now, while the industry awaits approval from the three other federal banking regulators, four large U.S. banks have raised objections as to how the revised accord should be implemented.

Cash flow models may not be keeping up with the rapidly growing and transforming high-grade ABS CDO sector, according to a report released last week by Deutsche Bank analysts. The U.S. high-grade ABS CDO sector has grown exponentially in recent years - to roughly $40 billion year-to-date from about $42 billion in all of 2005, and some $5 billion two years earlier - primarily due to demand on behalf of some investors for "safer," higher-rated portfolio assets. The deals now represent two-thirds of the entire structured finance CDO market, Deutsche said.

Investor demand might not have forced issuers to bring a lot of deals to the ABS market last week, as new pricings totaled just $11 billion. Traders and other market professionals, however, said the deals' warm reception kept spreads reigned in tightly across all sectors.

Recent leveraged loan spread widening could be a boon to new-issue CLO investors - as long as the widening is in fact due to market technicals. Bear Stearns analysts said as much last week, pointing out that widening in leveraged loan spreads could be owed mainly to supply and demand mismatches. On the fringes, some of the pull-back among certain investors could be due to loosened loan covenants, analysts said. But credit fundamentals within the U.S. loan market are widely anticipated to remain strong for several years - opening the door for equity investors to take ample opportunity of the record high return-on-equity in the space.

The release of standard documentation for trading CDO credit default swaps in early June was a major step toward transforming what has historically been a long-only market - and in the weeks following, the sector seems to be chugging along.

The Senate Banking Committee last Wednesday passed a version of legislation that aims to give the Securities and Exchange Commission explicit authority to regulate credit rating agencies. The Credit Rating Agency Reform Act of 2006, aims to increase competitiveness in the industry, address conflicts of interest, and if necessary, counter abusive practices.