Merrill Lynch dominated CDO underwriting in the third quarter when it managed more than $14.7 billion worth of deals and increased its market share to 18.2%. In the first three quarters of this year, the investment bank has brought a total of $34.6 billion worth of deals to the market - almost doubling the $18.3 billion it did in the first three quarters of last year, according to data maintained by Thomson Financial. Total CDO issuance as of the third quarter was nearly $227 billion, completely eclipsing the $103.6 billion in CDOs issued to the market by the third quarter in 2005.
The torrid pace of issuance is a testament to high investor demand for the securities, as well as continued innovation within CDO structuring, market participants have said. Yet others point out that CDOs have merely been feasting off the U.S. housing market - and supply is indeed slowing down. "The unbridled pace of issuance activity in the CDO market appears to be yet another case of technicals that are not yet in line with fundamentals," Deutsche Bank analysts wrote last week. "We continue to maintain that this cannot last indefinitely." Excluding CDOs, the ABS market has contracted by 4.9% this year.
Slowdown for some
Not all lead manager results reflected the CDO market's growth. Citigroup, for one, slowed its CDO underwriting in the third quarter compared to the second - nearly by half. In the third quarter, Citi brought $6.5 billion in deals, earning an 8% market share and a fourth place finish, a slowdown from the second quarter, when it underwrote $12.5 billion worth of deals and temporarily ranked number one over Merrill with a 15.8% market share. Meanwhile, Citi - which brought $25.8 billion in CDOs to market in the first three quarters of the year - landed in second place and earned an 11.4% hold on the market, compared with $12.7 billion at this time last year and a 12.2% market share.
Deutsche took third place for the first three quarters of this year, bringing $16.6 billion worth of deals, and earning a 7.3% market share. The investment bank made significant strides in CDO underwriting since last year at this time, when it was ranked seventh among its peers, with a 6.8% market share and about $7 billion in issuance. Deutsche almost matched that amount in the third quarter of this year alone, when it underwrote $6.7 billion worth of deals, earning an 8.3% market share, up from $5.2 billion worth of CDOs and a 6.6% market share in the previous quarter, which had landed Deutsche in fourth place.
Banc of America Securities also rose through the ranks. The bank brought $15.4 billion in deals to the market during the first three quarters of this year, landing it a fourth place finish and a 6.8% market share. Last year at this time, BofA was sitting with a 6.9% market share in sixth place, having brought $7.2 billion in deals. BofA finished sixth in the third quarter alone, however, bringing $5.6 billion in deals to the market for a 6.9% market share; the bank was in third place for the second quarter, when it brought $5.4 billion in deals for a 6.8% market share.
Last of the top five
Rounding out the top five CDO underwriters as of the third quarter's end was Wachovia Securities, which barely squeezed under BofA for its fifth place finish. Wachovia brought $15.3 billion to the market in the first three quarters of this year, earning it a 6.8% market share, compared to only about $9 billion at this time last year, but a third place finish and an 8.8% hold on the market. Wachovia in the third quarter of this year picked up the pace. The investment bank finished in second place, with $8.4 billion worth of deals and a 10.4% market share; that's up from seventh place in the second quarter, when it brought $4.4 billion in deals and had a 5.6% market share.
Notably, Credit Suisse rose to sixth place over the first three quarters of this year, compared to 10th place at this time last year. The investment bank brought $13.6 billion in CDOs to market for an even 6% market share, compared to only $4.2 billion in deals last year and a 4% market share. Credit Suisse, however, was ranked 11th place in the third quarter of this year alone, when it brought about $2.5 billion in deals, garnering a 3.1% market share. That's somewhat behind its second quarter pace, when it brought $4.4 billion in deals and had a 5.5% market share.
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