The U.S. asset-backed securities market in 2005 swelled to a record $1.1 trillion of issuance - exceeding year-ago analyst expectations and for the first time reaching into the trillion dollar range, according to data maintained by Thomson Financial. More than a few firms had felt 2004's then record-breaking $873 billion of issuance would be unbeatable last year, but phenomenal issuers such as Countrywide Financial Corp., which brought more than $93 billion to the market in 2005 [see article pg. 10] and underwriters such as Citigroup, which sold $98.5 billion, helped push the bar even higher.
U.S. ABS underwriters, while selling more deals than ever, scored a number of notable individual achievements, with players such as Merrill Lynch rising by an impressive 58% in total arranged volumes to reach the number four position, from eleventh place in 2004. The top five underwriters this year were seemingly packed tighter than ever. The number one arranger, Citigroup, was separated from number five by a $14.6 billion margin, versus a corresponding gap of $23.8 billion in 2004. The difference between Citigroup and number five was a tiny $7.6 billion in 2005.
The top arranger brought 217 deals to the market and earned an 8.6% market share. While it held the lead from 2004, Citigroup did lose ground in terms of market share, which slipped from 9.7% in 2004, when it completed 196 deals for a total $84.4 billion. Almost overtaking Citigroup's coveted number one spot last year was Lehman Brothers, which brought 217 deals worth $95.6 billion, earning an 8.4% market share - just 200 basis points away from tying with the longtime leader. Lehman in 2004 ranked third among ABS underwriters, with an 8.6% market share achieved through 205 deals worth $74.8 billion.
Credit Suisse First Boston rounded out the top three and the last of the $90-billion range underwriters last year, with 199 deals worth $90.9 billion, giving the arranger an even 8% market share. CSFB in 2004 came in fourth place, with 173 deals adding up to $68.8 billion and a 7.9% market share.
Leapfrogging several notches, Merrill was able to increase its underwriting presence from $54.4 billion in 2004 to $85.9 billion in 2005. Merrill managed 141 deals last year for a 7.5% market share from 131 deals and a 6.2% market share the previous year. Deutsche Bank, meanwhile, rose to rank fifth last year from an eighth place finish in 2004. Deutsche brought $83.9 billion to the market through 172 deals, earning a 7.3% market share from its 2004 total of $60.6 billion through 155 deals and a 6.9% market share.
Surprisingly, while dominating the issuance market, Countrywide's underwriting operations fell to sixth place this year from second place last year - brought on by only a slight drop in deal volume. Countrywide Securities Corp. brought 88 deals to the market in 2005, totaling $77.3 billion, compared with 91 deals worth $79 billion in 2004. In the torrent of fresh ABS supply during 2005, That less-than $2 billion decline meant a drop in market share to 6.8% from 9.1% one year earlier, a process driven by the torrent of fresh ABS supply washing over the market in 2005.
Also of note, Friedman Billings Ramsey Group leapt up in 2005 to a 16th place spot among underwriters after ranking 29th in 2004 with a 0.1% market share gained through only two deals totaling $650.2 million. FBR in 2005 brought 16 deals to the market worth $9 billion, earning a 0.8% market share.
Looking forward to 2006, Lehman Brothers weighed in on the sector with a message of qualified optimism. "A cynic might say that the party in ABS is over," the banks said in an outlook released last week. "The macro risks of consumer credit and housing are looming, spreads remain near historical tights, and credit performance leaves little room for improvement, [while] investors are navigating a new terrain with ABS CDOs and synthetics." Though Lehman echoes much of those sentiments, it is still, as many, expecting a half-full - rather than half-empty - ABS glass for next year.
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