A structured finance curio for you on Wednesday morning.
The Wall Street Journal reports that US prosecutors are investigating some Morgan Stanley-arranged synthetic subprime CDOs. The WSJ doesn’t give specific names/Cusips or tranches, but does add that while the bank helped create the deals in mid-2006, Citigroup and UBS underwrote and marketed them.
That would roughly tally with the Buchanan Series 2006 (UBS).
And the Jackson Series 2006 (Citi).*
In the summer of 2007, as the subprime crisis took hold, rating agency Standard & Poor’s published an update on CDOs and their exposure to risky subprime CDS. As of July 2007, the Jackson CDOs had 21.25 per cent of their referenced subprime RMBS on CreditWatch negative — the highest of all synthetic CDOs but for an Abacus deal and the Cookson series:
The Buchanan series’ exposure, meanwhile, was somewhat lower at 4.5 per cent:
Despite that smaller number, however, Buchanan 2006-IA (for example) was downgraded in October 2007 from A to BBB+ by S&P. It was rated D, or in default, by April 2009, according to Bloomberg data.
Jackson 2006-1A, meanwhile, had been downgraded to BBB+ by November 2007, and D by January 2009, after being rated triple-A in October 2006.
Dead presidents really didn’t survive subprime then. Quelle surprise.
* Some Buchanan and Jackson Cusips: 118011AA3, 118011AB1, 118011AE5, 903393AA4, 903394AA2, 903382AA7, 903398AA3, 903399AA1, 903401AA5.
Related links:
A sticky CDO situation for Morgan Stanley – FT Alphaville
Wall Street bank scrutinise pre-crisis CDOs – FT