Morgan Stanley Dean Witter is establishing a securitization research presence in London, sensing that the stakes are rising to establish a foothold in the European mortgage-backed market - one of the best hopes for growth in what could be a series of down years for debt.
Longtime asset-backed securities research head Charles "Chip" Schorin has recently assembled a four-person team to run the new London division, and may expand the operation further in the next year, he said. Also, given that Asia is now showing early signs of growth in the securitization markets, it is likely that Morgan Stanley will open up an ABS/MBS research branch in the Pacific Rim at some point in the future.
Schorin relocated from New York to London earlier this year, leaving Morgan Stanley's 11-person U.S. securitization research operation in the hands of Howard Esaki, and has been busy staffing up the new London unit. Last week the shop nabbed Greenwich Capital Markets researcher Robert Gillman, following the hire of research analyst Sarah Barton and the promotion of European ABS researcher Robert Paterson.
Until earlier this year, Morgan Stanley had been running its international securitization research from New York, something officials now admit was a handicap. "Before moving to London it was difficult to see what was going on in this market," Schorin said. "To be involved in this market you have to be here."
As the European ABS/MBS investor base becomes more diversified and experienced and as the number of issuers expands, monitoring the European market via phones, the Internet and the occasional red-eye flight is not going to make the grade any more, market pros said.
European securitization players are starting to notice which shops are willing to spend money on London or Frankfurt real estate. "Many names on the global research rosters of our competitors still have a 212 area code," one source now building an ABS operation in Europe said.
For an aspiring ABS/MBS shop, Europe presents the best opportunity to expand overall market share now, given that the domestic MBS market is in a serious funk and that many of the key areas of domestic ABS such as home-equity loans and manufactured housing loans seem to have reached a plateau.
So far this year European MBS/ABS new issuance is more than $60 billion, already topping 1998's total issuance and closing in on last year's total of $72 billion.
With at least $25 billion in new deals slated for the next three months - and that could be way low, according to some researchers - the fourth quarter of 2000 could be the largest European MBS/ABS quarter in history.
Morgan Stanley is in striking position to make the top tier of the ABS market. While Salomon Smith Barney still retains a solid dominance of ABS, Morgan Stanley is fighting tooth and nail with several other underwriters for a runner-up slot.
As of the end of third quarter 2000, the shop was ranked fifth with $17 billion in issues underwritten and an 8.1% market share, according to Thomson Financial Securities Data. A few major European ABS deals under its belt, however, could propel Morgan Stanley past close rivals Credit Suisse First Boston and Deutsche Banc in the rankings.
Having a credible European presence is essential for Morgan Stanley, observers said, given the home-team advantage on the Continent for such players as CSFB and Deutsche.