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Mortgage Slide Shakes Up Underwriter Ranks
Asset Backed Alert, Harrison Scott Publications Inc. (March 30, 2007)

This year is shaping up as a good one for investment banks that don't rely so heavily on home-loan securitizations to feed their structured-product underwriting businesses, and as a bad one for many who do.

As the first quarter of 2007 draws to a close, bookrunners Citigroup, Deutsche Bank and Merrill Lynch are leading a worldwide market for asset-backed securities, collateralized debt obligations, residential mortgage bonds and commercial MBS. Those sectors have experienced virtually no change from their year-ago tally of $557 billion.

The top-three banks managed about $140 billion, or 25%, of all transactions completed during the January-March period, according to preliminary quarter-end figures from Asset-Backed Alert's ABS Database. Deutsche seems to have the upper hand at the moment, with an estimated $50 billion of assignments that would put it about $5 billion ahead of both Citi and Merrill.

At the same time, Lehman Brothers slipped out of the top five, after winning the worldwide bookrunner derby in each of the last two years. The bank led only 5%, or $30 billion, of deals brought to market so far this year, down from 8% a year ago.

Lehman's decline was mirrored by substantial dips in the volumes of offerings managed by Bear Stearns, Countrywide Securities, Credit Suisse and Goldman Sachs. The culprit isn't a surprising one: Each of those institutions is known for distributing huge amounts of bonds backed by U.S. subprime mortgages and home-equity loans that are originated or bought by affiliates, clients and the investment banks themselves.

Opportunities to complete such deals have dwindled in recent months, as soaring delinquencies and losses among the underlying borrowers put some lenders out of business and created a liquidity crunch for those still writing loans.

Deutsche, Citi and Merrill, among others, have been able to increase their underwriting tallies though, by concentrating more on deals backed by non-mortgage assets like auto loans, student loans and credit-card receivables.

Still, huge strides are hard to come by, as the evaporation of what had been a massive market for mortgage-related bonds puts an end to several years of booming growth in the worldwide structured-product field. A rise in activity from issuers in Europe, for example, hasn't been enough to offset the dip taking place in the States.

At this point, market players say it's likely that global issuance will soon fall behind 2006 figures. And it's virtually inevitable that U.S. volume will show a drastic decline at yearend, as the count of mortgage-related securitizations - and CDOs backed by them - continues to plummet.

Only $175 billion of asset- and mortgage-backed securities priced in the U.S. during January, February and March, down 18% from $215 billion a year ago. The tumbling tally of subprime-mortgage and home-equity loan issues are the main cause, with about $85 billion of such transactions booked so far. By this time in 2006, more than $140 billion of the bonds had priced.

Issuers of MBS collateralized by prime-quality loans have also been pulling back, to a lesser extent. Roughly $110 billion of deals have been completed in the sector this year, down from $136 billion a year ago.

Asset-Backed Alert will publish it final first-quarter rankings on April 6.



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