CDOs

When the asset-backed - and especially the mortgage-backed - securities markets came screeching to a halt over the summer, market participants were afraid to post bids and offers on the often highly illiquid securities because no one knew their values and there was no forum for adequate price discovery.

Liability spreads in the ABS CDO market may continue to push out as issuance remains at a standstill. But with the pickup in new deals in the CLO sector, similar widening appears to have ended with the third quarter.

Securitization pioneers Lewis Ranieri and Marcia Myerberg are back in the mortgage finance world with a new venture, an Internet business that links consumers directly with mortgage lenders, thrifts and commercial banks, bypassing mortgage brokers. Called Root Markets, the new business will be linked to Internet portals and newspaper sites.

The third quarter turned out to be a very slow and painful period for the asset securitization market. Issuance was a mere $114.4 billion during the period, which represented a 60% plunge from the same quarter last year, according to information from global research firm Dealogic.

Citigroup Global Markets managed to claim the top position among U.S. ABS CDO managers, according to Thomson Financial, despite a recent announcement that the bank is facing losses on $1.3 billion in pretax subprime MBS collateral, CDO positions and leveraged loans warehoused for future CDOs.

Outstanding paper in the asset-backed commercial paper market might have pulled back since August, but new vehicles are still cropping up. Deutsche Bank, for one, launched a so-called feeder conduit called Montage Funding recently.

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Largely on the strength of consumer ABS assets, the securitization market slowly cranked out several more transactions last week. Also, while some traders reported better demand across the credit spectrum for ABS paper, a trend developing in both the secondary and primary markets, most expected deal volume to slow down considerably as the third quarter comes to a close.

For several months now, the capital markets have been bracing for layoffs stemming from the downturn in the subprime MBS, CDO and broader ABS markets. Last week, a wave of at least a couple hundred layoffs moved through the MBS businesses at Credit Suisse and HSBC Securities, leaving much of the industry nervously awaiting more.

The current joke on the street goes something like this: Do you know what a cov-lite rating is? Well, just the kind of rating the rating agencies were giving - no verification, no due diligence.

Industry observers have been bracing for October, when an estimated $50 billion worth of adjustable rate mortgages are going to reset to higher rates.

The September remittance reports revealed that conditions in the mortgage market are worsening, although the rate of credit performance dislocation is mostly slowing, according to a UBS report.

For all the dread the collapse of the subprime market has brought to the economy, those looking for a bit of good news have projected a stronger mortgage market on the assumption that lenders have begun tightening their underwriting standards.

As if the structured finance CDO market has not been dragged through the mud already, market-value CDOs appear to be the latest investment vehicle wounded by the lack of liquidity in the mortgage sector.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Wachovia Securities 9,248.1 1 16.821 14 JPMorgan Securities 6,893.32 2 12.538 15 Banc of America Securities 5,461.4 3 9.934 10 Citigroup Global Markets 5,070.9 4 9.223 10 Credit Suisse 3,653.0 5 6.644 7 Deutsche Bank Securities 2,911.1 6 5.295 7 Barclays Capital 2,834.3 7 5.155 6 ABN AMRO 2,783.0 8 5.062 5 Merrill Lynch 2,726.4 9 4.959 5 HSBC Securities 2,713.2 10 4.935 4 Industry Total 54,978.6 - 100.0 58 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Citigroup Global Markets 35,900.4 1 15.1 50 Merrill Lynch 32,509.3 2 13.6 40 Wachovia Securities 19,435.3 3 8.2 34 JPMorgan Securities 15,666.9 4 6.6 27 Banc of America Securities 14,629.0 5 6.1 19 Deutsche Bank Securities 14,471.0 6 6.1 31 Lehman Brothers 14,343.1 7 6.0 29 Morgan Stanley 13,926.2 8 5.8 70 Bear Stearns 11,721.3 9 4.9 23 UBS 11,547.1 10 4.8 27 Industry Total 238,421.7 - 100.0 434 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JPMorgan Securities 15,980.0 1 25.691 27 Citigroup Global Markets 14,165.0 2 22.773 15 Banc of America Securities 11,573.3 3 18.607 21 Morgan Stanley 5,052.6 4 8.123 8 Credit Suisse 2,721.3 5 4.375 8 Deutsche Bank Securities 2,195.8 6 3.53 10 Barclays Capital 2,175.0 7 3.497 5 RBS Greenwich Capital 2,128.3 8 3.422 10 HSBC Securities 1,750.0 9 2.813 3 Wachovia Securities 1,337.5 10 2.15 4 Industry Total 62,200.3 - 100.0 89 Source: ASR Scorecard database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Countrywide Securities 24,396.8 1 12.333 26 Merrill Lynch 19,769.4 2 9.993 22 RBS Greenwich Capital 16,382.0 3 8.281 30 Morgan Stanley 16,051.0 4 8.114 18 Lehman Brothers 15,594.4 5 7.883 25 Citigroup Global Markets 14,604.4 6 7.383 19 Bear Stearns 13,663.4 7 6.907 26 JPMorgan Securities 12,445.1 8 6.291 17 Barclays Capital 10,877.2 9 5.498 13 Banc of America Securities 8,563.4 10 4.329 23 Industry Total 198,177.9 - 100.0 254 Source: ASR Scorecard database

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 8,428.2 1 22.335 8 JPMorgan Securities 5,973.5 2 15.83 6 Deutsche Bank Securities 3,551.49 3 9.412 5 Credit Suisse 3,423.1 4 9.071 4 Barclays Capital 2,544.83 5 6.744 2 RBC Capital Markets 2,531.0 6 6.707 3 Goldman Sachs 2,326.17 7 6.164 3 Citigroup Global Markets 2,107.4 8 5.585 3 Morgan Stanley 2,090.1 9 5.539 2 Lehman Brothers 1,380.67 10 3.659 1 Industry Total 37,735.2 - 100.0 20 Source: ASR Scorecard database

aircraft ABS 1% auto ABS 11% credit card ABS 12% equipment ABS 1% real estate ABS 67% student loan ABS 8% trade receivables 0% utilities ABS 0%