It was a volatile week for Wall Street, as several banks delivered a punishing round of poor earnings reports, exacerbated by steep writedowns linked to subprime mortgage holdings. Accordingly, the securitization market hit a pothole on the road back to steady issuance.
Deal activity got off to an encouraging start when the Cabela's Credit Card Master Trust, 2008-1, priced via Wachovia Securities as lead manager. Pegged against swaps and the one-month Libor, the notes were able to price pretty much on target with guidance, give or take five basis points, especially on the single-A-rated pieces.
It was a strong week for credit card issuance, as the Bank of America Credit Card Trust came forward with two separate transactions on Jan. 11. The seven-year, $1.4 billion, Class A 2007-15 notes priced at one-month Libor plus 35 basis points. Meanwhile, the five-year, single-A-rated Class B 2008-1 notes, amounting to $200 million, came in at 150 basis points over the one-month Libor. Banc of America Securities acted as lead manager on both transactions.
Those deals characterized the type of transactions - credit cards and autos - that most market professionals expect for the near future. In the mood for raillery, one trader said: "Any deal is interesting, as long as it clears. People want to see them come and go before they dip their toes back in."
As the week progressed, though, few market players expected conditions to become more appealing for investors.
"No one bought anything, at least from what we can see," one trader said.
Citigroup recorded a loss of $9.8 billion in the fourth quarter of 2007, the largest in the bank's 196-year history. That loss was tied to an $18.1 billion write-down related to its holdings of subprime mortgages.
The news prompted Standard & Poor's to cut Citigroup's counterparty credit rating to double-A-minus, from double-A, and it now has a negative outlook. Moody's Investors Service, however, had a stable outlook on the company, though Fitch Ratings had a negative outlook. While reporting its fourth-quarter loss, Citigroup also warned of rising delinquencies in its consumer loan portfolio.
Quarterly profits at JPMorgan Chase & Co. fell by 24%, which was worse than expected. Its subprime mortgage write-down was relatively small, at $1.3 billion.
Merrill Lynch came along with terrible news, too. The brokerage took a $16.7 billion fourth-quarter loss, and had a net loss in the fourth quarter of $9.8 billion. Net revenue was negative $8.1 billion because of the write-downs, according to news reports.
Despite all of the trouble at the investment and commercial banks, market professionals continued to line up credit card and auto ABS transactions. The American Express Credit Account Master Trust was prepping a transaction, although its exact amount was unclear at press time.
In the auto ABS sector, the Hyundai Capital Auto Funding Ltd. had a $400 million deal in the pipeline, while the Ford Credit Card Auto Owner Trust was getting a $2.2 billion deal ready to come to market. Both were expected to price by late last week.
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