CDOs

In a drastic re-ordering of top ABS bookrunners, JPMorgan Securities became the top-ranked manager for public ABS deals in the first half of 2007, according to a preliminary tally of deals by the ASR Scorecard database.

Indeed, U.S. CDO issuance was up, totaling $188.3 billion through the first half of 2007, a small but not insignificant rise from $147.3 billion for the same period in 2006, according to Thomson Financial data.

Three U.S. options and futures exchanges have launched listed products aiming to grab shares of the burgeoning credit-derivatives market, although the new products are facing short-term hurdles and may encounter long-term ones as well.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Wachovia Securities 7,948.09 1 18.988 11 JPMorgan Securities 4,633.0 2 11.068 10 Banc of America Securities 4,559.57 3 10.893 8 Credit Suisse 2,819.7 4 6.736 5 Citigroup Global Markets 2,797.36 5 6.683 6 ABN AMRO 2,782.95 6 6.649 5 RBS Greenwich Capital 2,374.52 7 5.673 5 Merrill Lynch 2,226.38 8 5.319 4 Deutsche Bank Securities 2,009.23 9 4.8 5 HSBC Securities 1,963.94 10 4.692 3 Industry Total 41,858.2 - 100.0 43 Source: ASR Scorecards database

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Merrill Lynch 31,935.6 1 17.0 37 Citigroup Global Markets 26,497.0 2 14.1 35 Wachovia Securities 14,702.8 3 7.8 24 JPMorgan Securities 12,754.9 4 6.8 22 Banc of America Securities 11,793.1 5 6.3 13 Morgan Stanley 11,481.6 6 6.1 50 Deutsche Bank Securities 10,836.6 7 5.8 22 UBS 10,117.2 8 5.4 23 Bear Stearns 9,685.5 9 5.2 17 Lehman Brothers 8,402.0 10 4.5 16 Industry Total 188,024.6 - 100.0 321 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 JPMorgan Securities 11,655.0 1 25.943 19 Banc of America Securities 9,110.83 2 20.28 17 Citigroup Global Markets 7,425.0 3 16.527 12 Morgan Stanley 4,652.63 4 10.356 6 Deutsche Bank Securities 2,095.83 5 4.665 9 ABN AMRO 1,756.81 6 3.91 3 Barclays Capital 1,675.0 7 3.728 4 Credit Suisse 1,633.82 8 3.637 4 Wachovia Securities 1,337.5 9 2.977 4 RBS Greenwich Capital 1,158.33 10 2.578 8 Industry Total 44,925.8 - 100.0 69 Source: ASR Scorecards 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 22,508.65 1 12.107 23 Merrill Lynch 19,188.39 2 10.321 20 RBS Greenwich Capital 16,175.71 3 8.701 29 Lehman Brothers 14,978.04 4 8.056 23 Morgan Stanley 14,738.76 5 7.928 17 Citigroup Global Markets 14,599.53 6 7.853 19 Bear Stearns 11,850.64 7 6.374 21 JPMorgan Securities 11,198.67 8 6.024 14 Barclays Capital 10,312.58 9 5.547 12 Banc of America Securities 8,140.2 10 4.379 22 Industry Total 185,912.9 - 100.0 229 Source: ASR Scorecards 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 5,632.54 1 16.842 6 JPMorgan Securities 4,677.83 2 13.987 5 Deutsche Bank Securities 3,551.49 3 10.619 5 Credit Suisse 3,423.1 4 10.235 4 Barclays Capital 2,544.83 5 7.609 2 RBC Capital Markets 2,531.0 6 7.568 3 Goldman Sachs 2,326.17 7 6.955 3 Citigroup Global Markets 2,107.4 8 6.301 3 Morgan Stanley 2,090.1 9 6.25 2 Lehman Brothers 1,380.67 10 4.128 1 Industry Total 33,443.9 - 100.0 17 Source: ASR Scorecards database

auto ABS 8% credit card ABS 12% equipment ABS 1% real estate ABS 70% student loan ABS 9% trade receivables 0% utilities ABS 0%

spite a spike in prepayment rates for resetting loans and dramatic increases in delinquencies, losses to the ABX were relatively contained early last week. Similarly, pricing activity for other securitization sectors was mildly affected.

The catastrophe bond asset class is used to tossing around big ideas that manage risk from huge storms. A planned $4 billion transaction from State Farm Mutual Automobile Insurance Co., however, might be the largest transaction that the sector has ever produced.

At the recent Financial Accounting Standards Board (FASB) meeting on June 22, mortgage market participants - including bank regulatory agencies, investors, accountants, lawyers, the Securities and Exchange Commission (SEC) and the office of its chief accountant - gathered to discuss the issue of loan modifications and, more specifically, their application under FAS140.

June remittance reports released Monday reflected a negative trajectory for ABX 06-2 and 07-1 indices that are backed by 2006 collateral - which was expected. Specifically, deals in 07-1 continued to underperform. The referenced transactions for that index have been performing worse versus those for ABX 06-1 and 06-2, and the June data clearly reflected that trend, Street analysts said.

As if the Bear Stearns liquidation were not enough to ruffle the ABS CDO market, industry participants expect similar meltdowns to occur within the next few weeks. And as difficulties increase in placing portions of ABS CDO issues across the credit spectrum, further market drama will only weaken the demand.

CDOs are no longer a one-off phenomenon in the municipal market.

Adding to the investor concern over a bearish ABS CDO market, Derivative Fitch recently announced that it may cut the ratings on classes from three 2003 diversified structured finance CDOs and one high-grade CDO issued last year that have exposure to the infamous 2006 vintage subprime closed-end second liens.

The world has changed. Traditional approaches used to set the level of program wide credit enhancement (PWCE) for ABCP programs fall short of quantifying the true default risk associated with such portfolios. These approaches such as the fixed percentage approach for multiseller ABCP programs or the obligor or security coverage approach for securities-backed programs, do not take into account many important portfolio characteristics that affect the portfolio default risk. Specifically, they do not fully account for the subtle portfolio characteristics such as asset type, correlaton, and rating distribution among other factors when determining the PWCE level. To address these factors, Fitch employs a VECTOR CP analysis for the securities backed and multi-seller ABCP programs it rates on a monthly basis and when evaluating new transactions to be included in the program to determine the default risk for a given ABCP portfolio.

The whole-business securitization sector makes a relatively minor impact on the capital markets, in terms of volume. Just a handful of the deals come to market each year. Yet the asset class has given the capital markets a lot to talk about lately. In one year, both the DB Master Trust - better known as the Dunkin' Brands transaction from May 2006 - and the Domino's Pizza deal from last April pushed about $3.5 billion of asset-backed paper onto the market.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues Wachovia Securities 11,161.4 1 27.1 11 JP Morgan Securities Inc. 10,460.2 2 25.4 10 Banc of America Securities LLC 10,288.9 3 25.0 8 ABN AMRO Incorporated 7,181.7 4 17.4 5 Credit Suisse Securities (USA) LLC 6,816.6 5 16.5 5 Citigroup Global Markets, Inc. 6,747.9 6 16.4 6 Deutsche Bank Securities, Inc. 5,206.9 7 12.6 5 RBS Greenwich Capital 4,881.5 8 11.8 5 Barclays Capital 4,837.2 9 11.7 4 Merrill Lynch, Pierce, Fenner & Smith Inc 4,357.7 10 10.6 4 Industry Total 41,199.8 - 100.0 42 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 30,515.3 1 18.2 34 Citigroup Global Markets, Inc. 23,736.1 2 14.1 34 JP Morgan 12,804.9 3 7.6 22 Morgan Stanley 11,476.6 4 6.8 49 Wachovia Corp 10,323.9 5 6.2 20 UBS 9,760.8 6 5.8 19 Deutsche Bank AG 8,846.6 7 5.3 19 Banc of America Securities LLC 8,393.1 8 5.0 11 Bear Stearns & Co Inc 8,389.0 9 5.0 15 Barclays Capital 8,133.7 10 4.8 10 Industry Total 167,960.2 - 100.0 294 Source: Thomson Financial