CDOs

CDO spreads are tight and it appears major U.S. insurance companies have sold all the distressed collateral they care to let go of at this point, according to the industry's secondary traders last week. Yet, what sounds like a dour situation is anything but for a market that feeds on innovation. Traders believe more sophisticated analysis will lead to a more liquid secondary market for various types of CDO collateral, with some traders nodding towards ABS CDOs.

Underwriter DZ Financial Markets recently completed a $71 million term securitization for Settlement Capital Corp., marking this as the first term securitization executed by DZ Bank's U.S. subsidiary, said Dominick Ruggiero, vice president of the asset securitization group at DZ Financial.

Despite Friday's looming payrolls report, money managers, banks, insurance companies, dealers, and others were active buyers of mortgages. This was due in part to the recent cheapening, the beginning of a new quarter, and substantial cash positions. Technicals are also playing a part in the favorable performance. Originator supply remains modest at about $1 billion per day on average.

Year to date as of 10/14 Term (days) 10/08 10/11 10/12 10/13 10/14 1-week

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JP Morgan 8,539.9 1 16.1 17 Citigroup 7,482.7 2 14.1 12 Deutsche Bank AG 6,828.5 3 12.9 12 Wachovia Corp 6,459.3 4 12.2 12 Banc of America Securities LLC 5,117.3 5 9.6 10 Credit Suisse First Boston 4,568.7 6 8.6 9 Barclays Capital 3,498.5 7 6.6 9 Morgan Stanley 3,023.9 8 5.7 7 Merrill Lynch & Co Inc 1,824.4 9 3.4 3 Lehman Brothers 1,255.7 10 2.4 3 Industry Total 53,085.2 - 100.0 65 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 9,246.5 1 17.4 17 Morgan Stanley 4,808.0 2 9.1 13 Citigroup 4,610.0 3 8.7 18 Deutsche Bank AG 4,279.6 4 8.1 10 UBS 4,279.1 5 8.1 7 Credit Suisse First Boston 3,912.8 6 7.4 9 Wachovia Corp 3,810.7 7 7.2 16 Bear Stearns & Co Inc 3,218.0 8 6.1 10 Lehman Brothers 2,943.0 9 5.6 10 Banc of America Securities LLC 2,571.3 10 4.9 15 Industry Total 53,031.2 - 100.0 147 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 14,292.5 1 34.4 24 Citigroup 9,447.3 2 22.8 19 Lehman Brothers 4,595.5 3 11.1 9 Barclays Capital 3,184.2 4 7.7 9 Credit Suisse First Boston 2,550.4 5 6.2 9 Banc of America Securities LLC 2,468.1 6 6.0 10 Deutsche Bank AG 1,875.0 7 4.5 8 Morgan Stanley 950.0 8 2.3 5 Merrill Lynch & Co Inc 827.2 9 2.0 3 Wachovia Corp 775.0 10 1.9 4 Industry Total 41,500.1 - 100.0 75 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 Citigroup 3,958.0 1 30.8 6 Morgan Stanley 2,249.7 2 17.5 3 Banc of America Securities LLC 2,190.6 3 17.0 4 Merrill Lynch & Co Inc 1,728.6 4 13.4 2 Credit Suisse First Boston 1,058.0 5 8.2 3 JP Morgan 728.6 6 5.7 1 HSBC Holdings PLC 708.0 7 5.5 2 ABN AMRO 250.0 8 1.9 1 Industry Total 12,871.5 - 100.0 11 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 Countrywide Securities Corp 52,333.3 1 13.7 49 Royal Bank of Scotland Group 44,292.7 2 11.6 81 Lehman Brothers 39,462.5 3 10.3 81 Credit Suisse First Boston 31,982.5 4 8.3 62 Morgan Stanley 29,247.1 5 7.6 60 Bear Stearns & Co Inc 28,632.2 6 7.5 58 Banc of America Securities LLC 26,055.2 7 6.8 64 Deutsche Bank AG 24,827.3 8 6.5 64 Citigroup 22,504.8 9 5.9 64 Merrill Lynch & Co Inc 15,871.2 10 4.1 33 Industry Total 383,281.2 - 100.0 702 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 Deutsche Bank AG 5,866.6 1 15.4 9 Citigroup 5,171.7 2 13.6 7 Merrill Lynch & Co Inc 4,923.7 3 12.9 6 Morgan Stanley 4,582.9 4 12.0 8 JP Morgan 3,881.5 5 10.2 7 Banc of America Securities LLC 3,467.2 6 9.1 4 UBS 2,782.5 7 7.3 6 Credit Suisse First Boston 2,745.6 8 7.2 4 Lehman Brothers 2,524.1 9 6.6 4 KeyCorp/McDonald Investments 600.0 10 1.6 1 Industry Total 38,119.1 - 100.0 33 Source: Thomson Financial

Year to date as of Oct 6 Coupon Type Market Average Life Buckets Asset Class Volume Pub/144A Fixed Rate Floating Rate Public 144A 0.0 to 0.9 1.0 to 2.9 3.0 to 5.9 6.0 to 7.9 8.0 to 11.0 Aircraft Leases 126 126 126 126 Auto Loans/Recs 41,391 36,622 4,769 35,132 6,259 16,580 18,742 6,069 Comm. Mtg 2,899 1,294 1,605 2,899 1,261 229 829 540 Commercial Loans Corp Bond/Note 3,846 1,696 2,150 3,846 2,569 746 45 485 Corporate Loans 5,352 286 5,066 5,352 2,480 395 370 1,192 914 Credit Card Rec 28,632 10,299 18,333 24,659 3,974 19,334 1,400 5,749 900 1,249 Debentures 2,122 2,122 2,122 2,122 Equip Loans Equip. Leases 4,744 4,469 275 4,164 580 2,293 1,388 554 221 289 Floorplan Recs 8,026 840 7,186 7,902 124 4,014 830 3,182 Franchisee Loans 194 194 194 Home Impr Loans Installment Recs 1,797 1,797 1,797 1,797 Junk Bonds Leveraged Loans 1,174 64 1,110 1,174 38 10 284 842 Mixed Collateral 1,881 7 1,874 1,881 1,500 306 22 53 Mnfrd Housing Ct 200 200 200 200 Motorcycle Loans 2,740 2,740 2,740 313 1,923 504 Mutual Fund Fees 501 331 170 501 501 Non-Jumbo Mtg Ln 68,520 31,864 33,291 65,728 2,793 41,621 14,956 10,760 849 319 Oil Receivables Preferred Sec 3,597 2,268 1,330 3,597 3,253 158 186 Prv Issued Sec 1,852 1,079 380 590 1,262 1,852 Rental Car Rec. 2,400 1,300 1,100 2,400 1,300 1,100 Rev Cred/Home Eq 216,332 125,057 77,504 186,006 30,325 143,388 44,757 25,956 1,606 553 Sm Business Loan 828 828 828 828 Struc Fin Credit 14,838 6,458 8,380 14,838 5,807 2,507 4,928 1,508 Student Loans 30,626 6,957 21,983 25,639 4,986 17,780 3,239 4,044 3,663 1,808 Tax Liens Ticket Rec Timeshare Loans 635 386 250 635 336 300 Tobacco Receives Trade Recs Unspecified/NA Note: Figures are preliminary and subject to change. Data includes U.S. deals and dollar Euro 144As.Source: Thomson Financial

Rev Cred/Home Eq 48% Non-Jumbo Mtg Ln 15% Auto Loans/Recs 9% Student Loans 7% Credit Card Rec 6% Other 15%

Citigroup Global Markets has reclaimed its lead in the U.S. ABS league tables, according to preliminary data maintained by Thomson Financial, outpacing its competitors by almost a two-to-one margin in the third quarter. The $32.6 billion of primary ABS supply Citigroup underwrote in the third quarter pushed its year-to-date total to $68.6 billion, giving it more than 11% of the market, and putting it $13 billion ahead of its closest competitor. In the first three months of 2003, Citigroup had sold $47 billion of new-issue supply.

Net interest margin (NIM) mortgage securitizations may be commonplace in the U.S., and are even considered a driving force in the home equity sector's boom in recent years, but other markets have been slow to catch on. Given how Australia has the second biggest RMBS market behind the U.S., it is perhaps surprising that NIM issues haven't grown on the radar Down Under at a similar pace.

Last week the Financial Accounting Standards Board decided to expand the scope of the proposed implementation of sections of the Emerging Issues Task Force 03-1 (The Meaning of Other-Than Temporary Impairment and its Application to Certain Investments), officially delaying implementation. The scope now includes the securities under paragraphs 10 to 20 of the guidance, covering super-premium prepayable or callable securities as well as equity securities such as cost-method investments.

The U.S. ABS primary market slowed considerably last week when held up against the heavy volume witnessed in the preceding weeks. Just over $10 billion was slated to price as of Thursday evening, compared with over $20 billion the week prior. The lull is due in part to anticipation of the upcoming IMN ABS East Conference, which takes place in Boca Raton, Fla., next week, sources said. New-issue volume is expected to swell when the conference concludes.

Dell Financial Services, a joint-owned venture of Dell and The CIT Group Inc., has taken the reins as master servicer in CIT's recently priced CITEC 2004-DFS equipment-backed offering, a first for the financing arm of the computer giant.

Merrill Lynch increased a staggering 422%, versus the same period last year, taking the number one spot with $9.24 billion of CDO product placed. In fact, Merrill doubled its nearest competitor and accounted for 17.8% of the market. Through the first three quarters of 2003, Merrill ranked seventh with $1.8 billion issued.

Granted spread tightening has been a factor across numerous asset-backed markets but none have responded with the panache that the CDO market has. Three innovations have grown in popularity this year, including a brassy new structure that harnesses collateral in the high yield bond market.

In an unusual move to douse investors' fears over deteriorating receivables in two First North American National Bank deals, Banc of America Securities recently put up a $ 1 billion irrevocable letter of credit to ensure that investors are made whole. However, surety provider Ambac will be the one to put out the fire should the worst case scenario come to pass.