ABS

Over the past year or so, nothing has grown faster than demand for synthetic collateralized debt obligations. In the past several weeks, a drumbeat of warnings has emanated from the likes of the International Monetary Fund, Standard & Poor's, and a top official at the U.S. Federal Reserve.

Year to date as of 05/11 Term (days) 05/05 05/06 05/09 05/10 05/11 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Deutsche Bank AG 4,207.7 1 15.5 8 Credit Suisse First Boston 3,449.5 2 12.7 7 Merrill Lynch & Co Inc 3,402.4 3 12.5 6 Citigroup 3,206.3 4 11.8 5 Barclays Capital 3,195.9 5 11.8 6 Banc of America Securities LLC 2,899.9 6 10.7 6 JP Morgan 2,268.8 7 8.4 4 Wachovia Corp 1,837.0 8 6.8 4 Goldman Sachs & Co 1,289.0 9 4.8 1 Lehman Brothers 780.3 10 2.9 1 Industry Total 27,153.5 - 100.0 26 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Merrill Lynch & Co Inc 7,149.5 1 19.8 11 Citigroup 4,165.6 2 11.5 10 Morgan Stanley 3,964.6 3 11.0 15 UBS 3,442.6 4 9.5 8 Lehman Brothers 2,714.2 5 7.5 9 Bear Stearns & Co Inc 2,530.2 6 7.0 6 Groupe Caisses d'Epargne 1,742.0 7 4.8 2 Goldman Sachs & Co 1,500.0 8 4.2 1 Wachovia Corp 1,241.9 9 3.4 3 Banc of America Securities LLC 1,058.3 10 2.9 10 Industry Total 36,181.1 - 100.0 96 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 4,025.0 1 34.7 9 Citigroup 2,874.8 2 24.8 6 Morgan Stanley 1,666.5 3 14.4 2 Barclays Capital 1,049.1 4 9.1 8 Deutsche Bank AG 534.8 5 4.6 6 Credit Suisse First Boston 413.3 6 3.6 2 Lehman Brothers 375.0 7 3.2 1 Banc of America Securities LLC 286.6 8 2.5 4 Merrill Lynch & Co Inc 262.6 9 2.3 3 UBS 46.3 10 0.4 1 Industry Total 11,587.5 - 100.0 25 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Morgan Stanley 1,191.7 1 21.4 2 Deutsche Bank AG 1,191.7 1 21.4 2 Lehman Brothers 725.8 3 13.0 1 JP Morgan 725.8 3 13.0 1 Barclays Capital 725.8 3 13.0 1 HSBC Holdings PLC 566.7 6 10.2 1 Citigroup 212.0 7 3.8 1 Industry Total 5,569.5 - 100.0 5 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Bear Stearns & Co Inc 22,416.3 1 10.3 37 Lehman Brothers 20,672.3 2 9.5 51 Morgan Stanley 20,231.6 3 9.3 24 Countrywide Securities Corp 18,767.1 4 8.7 23 Royal Bank of Scotland Group 18,616.8 5 8.6 29 Credit Suisse First Boston 17,971.9 6 8.3 42 Deutsche Bank AG 16,796.8 7 7.8 33 Banc of America Securities LLC 11,998.7 8 5.5 25 Merrill Lynch & Co Inc 10,937.9 9 5.0 14 Citigroup 10,317.1 10 4.8 22 Industry Total 216,807.2 - 100.0 391 Source: Thomson Financial

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Banc of America Securities LLC 3,134.2 1 18.9 4 Morgan Stanley 2,757.6 2 16.6 3 Citigroup 2,230.0 3 13.4 4 Credit Suisse First Boston 2,196.2 4 13.2 3 Deutsche Bank AG 1,483.8 5 8.9 3 UBS 1,447.2 6 8.7 3 Lehman Brothers 1,012.4 7 6.1 1 JP Morgan 983.8 8 5.9 2 Goldman Sachs & Co 806.2 9 4.9 2 Merrill Lynch & Co Inc 550.3 10 3.3 1 Industry Total 16,601.7 - 100.0 13 Source: Thomson Financial

auto ABS 18% credit card ABS 5% global MBS 5% real estate ABS 60% student loan ABS 8% other 3%

From the Junk In The Trunk dept...

Bear Stearns plans to release an updated subprime performance model to its trading desk and the public by month's end, said Steven Bergantino, a managing director involved with updating the model.

The Structured Finance Committee of the Association of the Bar of the City of New York will hold its inaugural meeting next month, sources confirmed. The 32-member committee will meet on Wednesday, June 1, at the bar association's midtown Manhattan headquarters and will be presided over by committee chairman Craig Wolson, partner with Duane Morris in New York.

U.S. cashflow and synthetic CDOs experienced an uptick in downgrades and fewer upgrades during the first quarter compared to 4Q04, according to a recent report by Standard & Poor's. Driving downgrades were ABS CDOs, which experienced the highest downgrades to upgrades ratio the sector has ever seen -accounting for 23 of the 34 CDO downgrades initiated by S&P in the first quarter. Upgrades were fueled by U.S. cashflow arbitrage corporate high-yield transactions, with a total of 14 out of 27 upgrades. S&P downgraded 18 CDOs in 4Q04, and upgraded 24.

The U.S. ABS primary market priced just $2 billion last week as an interest rate hike, a surprising Treasury announcement, high-profile corporate downgrades and pending employment numbers and conspired to keep things quiet.

Now that financial services company Clayton Services, Inc. and credit risk management firm The Murrayhill Co. have merged to form Clayton Holdings, Inc., the combined entity will look to make a push into the CDO sector, according to its new chief executive.

Long Beach Acceptance Corp. would like to note that in a story titled "Morgan Stanley stacks up major auto issuer, individual deal performance," Morgan Stanley researchers used incorrect data in their assessment, mistakenly reporting delinquency and loss data leading to incorrect numbers in its gross default and net loss assessments.

Analysts with Fitch Ratings took a broad look at the regulatory and legislative environment surrounding the ABS market and deemed it generally non threatening for the time being. On a conference call held last week, the analysts opined on Securities & Exchange Commission's Regulation AB, the newly enacted bankruptcy reform and the reauthorization of the Higher Education Act. Though each will impact deal performance in their own ways and to varying degrees, the analysts did not give any indication that any of the issues would cause immediate changes to their ratings assessments.

Spreads on structured finance CDOs tightened another two basis points last week, to 30 basis points on triple-A rated notes, landing at historically tight levels - 10 basis points tighter than six months ago, and 20 basis points tighter from a year ago according to Morgan Stanley. Strong investor demand continues to fuel the tight spreads, despite the argument by some that investors are not getting compensated for the risk in the underlying collateral.

Terwin Money Management LLC expects to close its first ABS CDO of the year - Northwall Funding CDO 1 Ltd. this month. The $300 million deal will be the fourth ABS CDO for San Francisco-based Terwin, all of which have been underwritten by Merrill Lynch.

Researchers from Morgan Stanley delved deep into the obscure realm of post-NIM securities, last week. Post-NIMs, or "baby equity," offer an attractive alternative to mortgage derivatives for ABS and MBS investors seeking yield, claims the firm. "We believe that post-NIM residuals should not be considered an off-the-run market, but a clear alternative to traditional yield enhancers," write Morgan Stanley researchers, who estimate $10 billion worth of post-NIMs are being produced each year.