Securitization

Generally speaking, the preference of the private sector is for government entities to keep their bright ideas and legislative actions as far away from commerce as possible.

Congressional leaders and the White House were busy announcing a $150 billion economic stimulus plan that aimed to benefit consumers and businesses last week. The package would deliver stipends of up to $1,500 per household, and give tax incentives for businesses to continue spending.

Despite widespread objections from securities professionals, the Financial Accounting Standards Board (FASB) is expected to approve a set of policies that would, in most cases, require financial institutions to link the initial transfer of a security and the subsequent repo financing for accounting purposes.

Credit Suisse's plan to lay off 500 people is part of a streamlining of its roughly 20,000 member investment banking businesses, sources familiar with the situation said last week.

Talk of increased transparency is in the air, and Wells Fargo Corporate Trust Services has chimed in with the launch of its Collateral Risk Manager service, a product that allows issuers and investors to conduct in-depth analysis on their structured product portfolios. The goal is to allow users to make more timely and well-informed decisions about their holdings.

Market value ABS CDOs have taken a beating from declines in the value of their underlying collateral. And now, the recent downgrades on synthetic CLOs backed by total return swaps have demonstrated that falling prices in the loan market have put CLO structures at risk too.

Ambac Financial Group has become the first AAA'-rated monoline to be downgraded by a rating agency, igniting a wave of rating actions for bonds wrapped by the insurer.

Talk of an economic rebound during a week that saw the Federal Reserve ramp up its efforts to stave off a recession may seem a bit premature, but some market participants are not ruling out the return of jumbo prime loans later this year.

New plans for a state-guaranteed securitization and potentially retained equity or windfall taxation are being discussed as measures to save Northern Rock. This is yet another addition to the long list of proposals to come to the rescue of the British mortgage lender without imposing too much taxes on U.K. citizens.

The head of Deutsche Bank's structured finance research team, Ganesh Rajendra, started 2008 on a hopeful note. He held a conference recently at the Deutsche Bank offices in London titled A New Dawn After the Storm. Despite his display of optimism for the European securitization market, Rajendra said that the dark clouds have yet to clear completely.

Bad news continues to hit the ABS sector. Nonetheless, in these times of economic stress, securitization could still be used as a viable financing tool. But how can investors be lured back?

What a difference a year makes. This is clearly shown by the significant drop in securitization volume in 4Q07 compared with 4Q06. Industry totals for 4Q07 public ABS transactions only reached $82 billion, according to the ASR Scorecards database. This is less than half of fourth quarter 2006's $188.8 billion total.

Full Credit to Book (Equal if Joint) U.S. Public ABS Market/144A Market Managers Proceeds (mils) Rank Mkt. Share # of Issues JPMorgan Securities 1,578.8 1 27.933 3 Wachovia Securities 1,125.0 2 19.904 2 Goldman Sachs 744.5 3 13.172 1 RBS Greenwich Capital 744.5 3 13.172 1 Credit Suisse 625.0 5 11.058 1 ABN AMRO 572.5 6 10.129 1 Banc of America Securities 261.8 7 4.632 1 Industry Total 5,652.1 - 100.0 5 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 Industry Total 0.0 - 100.0 0 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 3,400.0 1 31.898 2 JPMorgan Securities 2,396.0 2 22.478 2 Banc of America Securities 2,100.0 3 19.701 3 Deutsche Bank Securities 896.0 4 8.406 1 Credit Suisse 896.0 4 8.406 1 Wachovia Securities 501.0 6 4.7 1 Barclays Capital 450.0 7 4.222 1 Industry Total 10,659.1 - 100.0 8 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 Lehman Brothers 1,715.6 1 100.0 2 Industry Total 1,715.6 - 100.0 2 Source: ASR Scorecard database

Negative headlines persist. But despite the carnage, European securitization market players should start recognizing the signs of healing and get on board. Clearly, patience is key since the reparations needed to restore the market are likely to take some time.

It was a volatile week for Wall Street, as several banks delivered a punishing round of poor earnings reports, exacerbated by steep writedowns linked to subprime mortgage holdings. Accordingly, the securitization market hit a pothole on the road back to steady issuance.

Although not much activity is brewing in the ABCP market, Calyon managed to identify enough investor interest in the U.S. to support a newly created subsidiary of LMA, called LMA Americas. The new subsidiary will be able to issue dollar-denominated commercial paper.

The mood was calm at The Loan Syndications and Trading Association's annual membership meeting last Tuesday, despite expectations of an uncertain year ahead for CLOs.