Credit Suisse First Boston, a bank yet to arrange a single Japanese residential mortgage-backed transaction, has scooped the most prestigious mandate this year in Japan: the chance to arrange and underwrite the state-owned Government Housing Loan Corp.'s inaugural RMBS.

And it all came down to a lottery. Literally.

Of the six banks that made it to the final shortlist - CSFB, Morgan Stanley Dean Witter, Mitsubishi Trust & Banking, Fuji Bank, DKB and Sanwa Bank - five submitted bids quoting similar bargain basement fees, leading the GHLC and its government advisors to decide that the only way to pick a winner was to draw lots. The names of the banks were put into a hat and drawn out, leaving CSFB celebrating and its rivals cursing.

The mandate was particularly sought after because of GHLC's central position in the Japanese mortgage market - it lends over 40% of all Japanese residential mortgages - and bankers in Tokyo are already saying that if the deal is a success it will be strong candidate for the deal of the year awards.

The year in question will be 2001, as the deal is scheduled for a first quarter close. The GHLC has also made clear the shape of the deal that CSFB will be arranging: a triple-A rated, fixed rate, monthly pay pass-through structure worth around 50 billion ($468 million).

Even though it has a bit of time, CSFB will have its work cut out. As its rivals are quick to point out, the Swiss bank has limited experience in Japanese term securitization, and none at all of arranging Japanese RMBS. Indeed, some of its rivals expressed surprise that it had made the final short list, as they argue that it didn't meet the criteria that the GHLC had set for winning bidders, in particular the call for experience in Japanese RMBS.

"Obviously, the GHLC new what CSFB have done and they were happy," said one expert, adding that the bank can point to transactions it has closed in Japan - including a 30 billion leasing deal - and considerable RMBS experience in other markets.

There was also surprise that the Japanese authorities have forgiven the bank for breaking regulations by selling derivatives that allowed clients to hide losses. The bank's derivatives business was hit with a ban and still hasn't got its license back, though this didn't directly affect the securitization group.

Nonetheless, the luck of the draw will stand CSFB in good stead. Bankers said that Japan has traditionally repaid the strategy of getting into a market early and building market share, and that that strategy is particularly effective in a property market that has been dampened by the decade long recession.

By having access to information on GHLC's pool of mortgages, CSFB will have an advantage when it comes to bidding on future GHLC mandates and when pitching for the growing volume of RMBS deals from banks, one securitization expert said.

In the longer term, experts think it likely that once CSFB and the GHLC's other advisors have closed the first deal and refined that template with more deals, the body may follow the strategy used in the U.S. by Fannie Mae: renting distribution.

"My guess is that like Fannie Mae they will be extremely price sensitive," said one pro. "Once they have a structure that they like and they get counsel, accountants and other advisors they are comfortable with, they will stick with that team and bring in underwriters. Distribution should not be a problem and so they'll eventually want Eurobond pricing, rather than securitization pricing."

This process is likely to take shape during fiscal 2001, when the GHLC plans to bring MBS deals worth at least 200 billion.

These deals represent the first steps in the Japanese government's move towards making the GHLC a self-supporting body. At the moment, its financing comes from the zaito program, which sees money saved in consumer postal savings accounts funneled to the GHLC. Whether the government is able to replace this system completely - and how quickly it will be able to do so - will initially depend on the success of the inaugural deal. It will not just be CSFB's unlucky rivals who will be watching closely.

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