Last week started off promisingly enough. The Federal Reserve gifted the credit markets with a 75-basis-point rate cut and provided more liquidity in the form of the $200 billion term securities lending facility. Also, the industry absorbed news of JPMorgan Chase's bargain basement buyout of Bear Stearns, rescuing the investment bank from total failure.
Still, it was not enough to give the ABS issuance market a significant boost. No more than a handful of transactions were announced, before many market participants wrapped up business and left the office for the holiday weekend.
Three of the deals in the pipeline came from the consumer ABS sectors. Capital One Multi-Asset Execution Trust, 2008-2, was in the market with a $500 million deal via Credit Suisse; Fifth Third Auto Trust, 2008-1 was shopping an $814 million deal with Barclays Capital as its underwriter; and SLC Student Loan Trust hoped to complete a $1.9 billion transaction via Citigroup Global Markets.
The CMBS sector was also represented in the deal pipeline, as Credit Suisse Commercial Mortgage Trust was marketing an $887 million transaction. Aside from Credit Suisse, that transaction was also lead managed by Morgan Stanley.
Other than that, Deutsche Bank Securities was bookrunner on a small, $110 million transaction for issuer 321 Henderson Receivables. That deal priced on March 14.
Perhaps because of the listing of deals that surfaced last week, and the Fed's actions, market sources were not convinced that a turnaround was in the offing anytime soon. Anyway, such reversals take a while, a market source said.
The Fed action shouldn't be seen as adrenaline shot that spurs the market to flourish immediately, another source said.
"Bernanke has been criticized for not acting fast enough, but if you look at where he is now, he probably only has another 100 basis points to 125 basis points left," he said. "If you look at the screens today, they're all green."
The real issue, he said is the repeal of the Glass-Steagall Act, which allowed commercial and investment banks to consolidate. A closer look at earnings results from the banking sector will bear out the fact that they are diversified. Therefore, although their securities businesses might suffer during the current turbulence in the credit cycle, banks are generally strong. For the most part, the U.S. banking system is the strongest in the world, he said.
Also, as long as U.S. consumers are still paying off debt such as credit card bills and car loans, there is reason to believe that the overall economy can withstand the current weakness in the housing market.
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