Securitization

Rev Cred/Home Eq 38% Auto Loans/Recs 14% Non-Jumbo Mtg Ln 14% Credit Card Rec 11% Student Loans 7% Other 16%

A market anomaly in underlying benchmark yield curve dynamics has caused two-year auto paper - historically the most difficult sell in the capital structure - to be shortened slightly and indexed off EDSF rather than interbank swaps. The investor community has demanded this structural change in reaction to current secondary-market quoting methods.

With the return of the CDO bid, one of the biggest winners of late has been home-equity ABS triple-B minus rated subordinates. Routinely pricing with an 800 basis point margin versus Libor, this year, top-tier triple-B minus bonds have cracked the 500 basis point threshold and are now approaching 400 basis point area over Libor.

AIG Life Co. is still rolling out deals that capture the arbitrage between life insurance and annuities. And these deals reportedly come with an interesting twist: The cash is destined for charities.

With $10.5 billion priced and an additional $1.5 billion set to price late in the week, the U.S. ABS primary market is making its last push of the year. Sources did expect the supply to continue into this week before dying off before Christmas.

Brad A. Morrice, vice chairman of mortgage lender New Century Financial Corp., projects the company's production will grow to $30 billion in 2004, adding that New Century was on track to hit its $27 billion target this year. Morrice recently spoke at the Friedman Billings Ramsey Group's investor conference.

With a new angle on monetizing intellectual property, IP Innovations Financial Services recently scored $28 million in start-up capital from Principal Financial Group, for the purpose of guaranteeing loans secured by IP assets.

What a difference a year makes, particularly regarding structured finance. After cycling through a record wave of downgrades in 2002, the CDO market has finally begun to show some ratings stability.

As 2003 draws to a close, Citigroup Global Markets has a seemingly insurmountable lead on its competitors in the U.S. asset-backed underwriter rankings, according to preliminary numbers maintained by Thomson Financial. With $62.4 billion of ABS sold through the middle of last week, Citigroup has a rough $10 billion lead on its nearest competitor, and an 11.3% market share.

For the most part, all the talk a few years ago about securitizing terrorism risk remained just that - talk. New developments, and an indirect reference, could help these deals along.

Northwest Airlines announced that it had successfully exchanged $59.06 million of its outstanding debt due through 2006 for newly issued Class D EETC notes due April 2009. Northwest expects to have closed $64.4 million of series 2003-1 EETC as of last Friday. Under terms of the exchange, the single-B rated EETCs will pay a 10.5% coupon. Led by Morgan Stanley, Northwest initially hoped to exchange up to $551.8 million of its unsecured obligations.

Morgan Stanley recently closed an innovative repackaging of impaired-aircraft ABS notes, issued through the bank's Combination Repackaged Asset Backed Securities II shelf, or CRABS II.

Year to date as of 12/22 Term (days) 12/16 12/17 12/18 12/19 12/22 1-week

2003 2002 2001 ABS (Public and 144A) 549,296 430,235 357,322 ABS (Public and 144A excluding CDOs) 503,425 383,180 309,392 ABS (Public Only) 440,788 345,081 262,836 ABS (144A Only) 108,508 85,154 94,486 Non-Agency MBS 312,720 234,726 189,305 Agency MBS 537,862 530,600 342,562 CMBS 66,352 48,596 63,630 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 11,840.4 1 17.2 18 Credit Suisse First Boston 7,996.7 2 11.6 15 Morgan Stanley 7,181.2 3 10.4 10 Deutsche Bank AG 7,041.4 4 10.2 11 Citigroup 5,750.3 5 8.3 11 BANK ONE Corp 5,321.8 6 7.7 10 Banc of America Securities LLC 4,854.7 7 7.0 11 Barclays Capital 4,808.9 8 7.0 12 Wachovia Corp 2,978.1 9 4.3 11 Bear Stearns & Co Inc 2,856.5 10 4.1 1 Industry Total 69,059.0 - 100.0 87 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 Credit Suisse First Boston 6,244.3 1 13.6 17 Deutsche Bank AG 4,397.6 2 9.6 13 Wachovia Corp 4,300.1 3 9.4 17 Merrill Lynch & Co Inc 3,690.7 4 8.1 10 Citigroup 3,633.2 5 7.9 11 Goldman Sachs & Co 3,450.3 6 7.5 7 Bear Stearns & Co Inc 2,834.2 7 6.2 11 Morgan Stanley 2,582.6 8 5.6 8 JP Morgan 2,461.9 9 5.4 6 Lehman Brothers 2,417.5 10 5.3 8 Industry Total 45,870.7 - 100.0 129 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 15,170.5 1 24.0 22 BANK ONE Corp 11,756.6 2 18.6 22 JP Morgan 10,553.7 3 16.7 18 Barclays Capital 5,748.8 4 9.1 12 Banc of America Securities LLC 4,062.3 5 6.4 13 Morgan Stanley 3,954.5 6 6.2 5 Deutsche Bank AG 3,834.6 7 6.1 14 Credit Suisse First Boston 2,818.7 8 4.5 10 Lehman Brothers 2,048.1 9 3.2 7 Merrill Lynch & Co Inc 1,744.5 10 2.8 7 Industry Total 63,350.3 - 100.0 105 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 2,184.6 1 27.8 7 Banc of America Securities LLC 922.7 2 11.8 2 BANK ONE Corp 900.0 3 11.5 2 JP Morgan 875.0 4 11.2 4 Barclays Capital 710.7 5* 9.1 1 Lehman Brothers 710.7 5* 9.1 1 Merrill Lynch & Co Inc 521.2 7* 6.6 2 Societe Generale 521.2 7* 6.6 2 Citigroup 500.0 9 6.4 1 Industry Total 7,846.1 - 100.0 12 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 Lehman Brothers 38,491.6 1 13.2 91 Credit Suisse First Boston 26,915.5 2 9.2 64 Citigroup 26,752.0 3 9.2 68 Morgan Stanley 23,662.9 4 8.1 50 Royal Bank of Scotland Group 23,534.2 5 8.1 49 Countrywide Securities Corp 23,369.3 6 8.0 41 Bear Stearns & Co Inc 21,116.5 7 7.2 46 JP Morgan 20,559.6 8 7.0 30 Deutsche Bank AG 19,769.1 9 6.8 49 Banc of America Securities LLC 19,308.3 10 6.6 60 Industry Total 292,115.5 - 100.0 582 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 7,352.6 1 20.1 14 Morgan Stanley 5,873.6 2 16.0 11 Merrill Lynch & Co Inc 5,143.5 3 14.0 11 Credit Suisse First Boston 4,203.5 4 11.5 9 Deutsche Bank AG 3,841.8 5 10.5 7 JP Morgan 3,071.2 6 8.4 7 UBS 2,368.0 7 6.5 5 Banc of America Securities LLC 2,090.1 8 5.7 6 Lehman Brothers 956.3 9 2.6 2 BANK ONE Corp 507.6 10 1.4 1 Industry Total 36,663.0 - 100.0 37 Source: Thomson Financial