Alright, we put our hands up, we’ve been reading Zero Hedge.
His Anonymous Handsome Midriffness is busy being his usual self, and on this topic he’s made us go hmmm about a certain Wall Street Journal story concerning SecondMarket Holdings, Inc. The platform is launching a service that will allow lenders to sell exposure in student loans to (accredited) investors. The WSJ describes it thus (emphasis ours): Read more
Evidently it’s time to get very excited about the risks posed by increasing student debt in the US, particularly as rates of delinquency are on the rise. Pretty graphs first, details follow…
Holy household debt, Batman! Student loan balances have surpassed credit card use and are still growing! Read more
The ECB announced some updates to its General Documentation on Wednesday. The item on ABS modifications caught our eye.
The move in question was first announced last April, and it represented a toughening up of the rules around ABS collateral for borrowing from the ECB. The update therefore isn’t so much a surprise as a reminder of one of the ongoing, but less spoken about, hangovers of the crisis.
Let’s review the situation… Read more
In ‘The Formula That Killed Wall Street’? The Gaussian Copula and the Material Cultures of Modelling, Donald MacKenzie and Taylor Spears present a history of the development of the one-factor Gaussian copula model, which is used to price various structured products, including Collateralised Debt Obligations (CDOs). As the title of the paper suggests, the model has many critics and has had a lot of blame placed at its feet.
What this paper reveals that really stands out is that the quant community also didn’t, and doesn’t, rate the Gaussian copula model highly at all. In fact, we’re putting that very mildly if the statements from quants interviewed by the researchers are anything to go by. Read more
Should insurers use the history of Greek bond prices as a benchmark for holding capital against holdings of sovereign debt?
You might well ask. Read more
Ha! Greek sovereign structured finance ha!
A great spot from Owen Sanderson over at IFR: Read more
Nomura has a new report showing that US loan growth is having a good quarter thus far, even after accounting for the normal seasonal boost, but what caught our eye was the excellent series of charts on the activities of foreign bank subsidiaries in the US.
We already know that a combination of forces (meeting capital ratios, the withdrawal of traditional sources of wholesale funding) has European banks looking to unload, or allow to run off, a sizable amount of their USD-based holdings, and to constrain lending. A previous Nomura note estimated that these banks have about $1.8 trillion in US assets. Read more
Earlier this week, FT Alphaville brought you a structured finance index primer. Now that everyone’s up-to-speed, let’s take a look at the latest price action, look at some (gasp!) fundamentals, and stir the debate on subprime versus prime — a party that we are admittedly fashionably late to.
As the above chart shows, the PrimeX indices have been experiencing something of a deterioration lately. This is potentially misleading, however, given that the indices are relatively illiquid. In terms of total amounts outstanding, the ABX indices (untranched) have $19.8bn net notional across 3,038 trades versus the $3.8bn net across 718 trades for the PrimeX, according to DTCC data that’s current as of last Friday. Read more
Some very interesting proposed changes to Standard & Poor’s rating methodology for CDOs made of stuff like ABS, in the following request for comment, we think:
Standard & Poor’s Ratings Services is requesting comments on proposed changes to the methodologies and assumptions it uses to rate collateralized debt obligation (CDO) transactions backed by structured finance (SF) securities… Read more
It’s like putting your foot on the accelerator but because the transmission mechanism isn’t working properly, the car wheels don’t respond.
Actually George, that might be because the car is on fire, and the wheels have blown off. Read more
Some of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, the FT reports, moving them off their balance sheets and into staff pension funds. The moves – designed with the dual purpose of clearing unwanted assets from the banks’ own books while at the same time closing pension fund deficits – have been made as exceptional top-up payments into the pension schemes over recent months. HSBC made a £1.76bn exceptional payment into its pension scheme, comprising a portfolio of assets ranging from subordinated debt to asset-backed securities, last December. Lloyds also made a £1bn commitment to its pension fund as part of a £5bn transfer of assets into an intermediary funding vehicle. Lloyds did not respond to requests for information about the arrangement, but pensions experts said the measures were comparable with the HSBC plan.
Leaving aside the volatility and growth fears, who is really compelled to sell Treasuries as a result of the S&P downgrade?
The answer, when it has all played out, might go some way to explaining just how powerful the ratings agencies are right now. Or, how powerful they should be. The last few days have seen some passionate debate on that subject. Read more
Bad bank, bad behaviour?
A timeline of recent events at debt-ish Northern Rock Asset Management: Read more
Your daily dose of financial innovation, right here.
Flexi ABS Trust 2011-1 may be a structured finance deal you’ve never heard of, but it’s making waves amongst securitisation types in Australia. Put simply it’s the first ever Australian deal to bundle interest-free payment plans for retail goods like jewellery, gym equipment, furniture and the like, according to Moody’s. Read more
CQS, the London-based credit hedge fund that is one of the biggest of its kind globally, is preparing to shut to new investors its asset-backed securities fund – known for its successful bets in the US subprime mortgage market, the FT reports. The CQS ABS fund is the second the firm has elected to close, highlighting the extent to which the most successful fund managers are again beginning to restrict capacity as they did at the peak of the credit boom. CQS’s total assets under management have nearly doubled to $11bn over the past 18 months as investors have rushed back to the once-stricken hedge fund industry.
Risk retention is all about ‘aligning the incentives‘ of various securitisation players.
But CreditSights analysts reckon regulators may have grabbed the wrong end of the securitisation stick, so to speak, when they proposed the rules. The structured finance meltdown, they argue, didn’t come about because of misalignment of incentives — but alignment. The securitisation mindmeld, so to speak. Read more
For the commute home, where your discount windows have always been transparent and available with easy credit,
– Appetite grows for asset-backed securities. Exotic ones, no less. Awesome. Read more
The repeal of Rule 436(g) sent the securitisation industry into a tizzy in the summer of 2010.
Now a component of last week’s proposed risk retention rules for Mortgage-Backed Securities (MBS) is sparking comparisons from some analysts, in relation to the commercial MBS market. The troublesome bit is called “premium capture” — and it’s pretty much the only thing that came as a surprise to the securitisaton industry in the 233-page proposal published by US regulators last week. Read more
So now that the Federal Reserve has gifted US banks with a one-size-does-not-fit-all policy in (some) securitisation risk retentions, which version will they be going for?
After all, they’ve got horizontal and vertical (and even L-shaped) slices to choose from. Read more
US federal agencies on Tuesday published 233 pages of proposed rules around credit risk retention for sponsors of asset-backed securities, a requirement laid down in the Dodd-Frank legislation.
Sexy lede, right? Wait, come back… Read more
Irish bank borrowings from Europe’s central bank in February — down €10bn, to €116bn (after much collateral swap shenanigans).
Irish bank borrowings from their own central bank, with collateral unacceptable at the ECB — up €20bn, to €70bn. Read more
FT Alphaville has been researching the issue of so-called ‘liquidity transfers’ ever since we first came across the matter in Life & Pension Risk in October.
As Risk noted at the time, there’s been an increasing trend for banks to swap their illiquid Asset-Backed Securities (ABS)-style assets for much more liquid securities held by pension and insurance funds via extremely long repo arrangements. Read more
‘Tis the season for 2011 predictions, and Moody’s has just released three more of them — one for credit card asset-backed securities and two for student loan ABS.
Emphasis ours in all excerpts. First, credit cards: Read more
Cast your minds back to 2007, 2008 and 2009 — and think hard.
You’ll need to. The Federal Reserve has just released the mother-of-all data dumps — showing who received payouts from its circa $3,000bn bailout programmes, how much and against what collateral. The release is part of the US central bank’s response to Dodd-Frank, which requires the Fed to reveal borrowers in its emergency facilities after a two-year delay. It does, however, exclude the revelation of who used the Fed’s discount window. Read more
You won’t find Ambac mentioned in Punch Tavern’s most recent annual report.
But it’s there. Hovering — waiting — in the background. Read more
A data point, in the relentless search for yield.
The bottom tranches of Granite — the mortgage securitisation vehicle of Northern Rock — crossed the 50 price level for the first time last week. This is, quite literally, the detritus of the Asset-Backed Securities world. A mezzanine tranche, in the master trust of a nationalised bank. There’s a rock bottom joke there somewhere. Read more