Scorecard: Securitization Q1-2008
Investors bought only $131 billion of new asset-backed securities, residential and commercial mortgage bonds and CDOs - down 81% from $701 billion a year earlier.
To put things in perspective, the shutdown of the securitization market is equivalent to closing down a large bank like Citigroup [annualized basis].
CDOs are in the midst of a dramatic pullback, falling from 21.1% of the new-issue market a year ago to 10.7% today. Subprime-mortgage deals, likewise, represented 12.4% of securitization activity at this point in 2007. Now they come in at a miniscule 1.7%. Home equity loans have dipped from 1.4% to zero.
Non-U.S. mortgages have seen issuance decline as well. But with a 22.4% market share, they now stand as the busiest asset class worldwide. Credit cards and auto loans, meanwhile, represented the only significant areas of growth during the first quarter of this year.
These days, 21.8% of all new securitizations are backed by credit cards, up from 3.6% a year ago, as new-deal output jumped slightly in the sector. Cards are now the number-two source of issuance activity. Prime-quality auto loans are the number-three asset class. Issuance in that area has doubled, causing its chunk of the market to grow to 11.1%, from just 1%.
Of course, it comes as no surprise that mortgage-related deals have waned, given that they have been blackballed by investors since the mid-2007 collapse of the subprime-lending business. However, issuance totals haven’t shown the full effect of the downturn until now, as lenders continued to move credits off their books late last year by floating new transactions.
In fact, prime-quality mortgages ended 2007 as the most-active asset class, followed by CDOs and non-U.S. mortgages. Credit cards were sixth. Prime auto loans were eighth.
For underwriters, the result has been a shakeup in how the league tables are decided, with J.P. Morgan, Citigroup and Bank of America as the world’s leading bookrunners of securitized products.
In the past, the investment banks with the biggest mortgage books tended to fare the best. Now the top players owe their standings largely to business from credit-card lending affiliates. J.P. Morgan, the current market leader, also got a $1.9 billion boost by serving as co-bookrunner on auto-loan offerings for CarMax, Nissan and Ford in January.
Overall, the volume of deals backed by prime-quality auto loans worldwide registered at $14.5 billion during the January-March period. On the credit-card side, issuers completed $28.6 billion of securitizations.
Even that jump has its roots in the mortgage crisis. As home lenders collapsed or turned off their spigots over the past year, cash-strapped borrowers in the U.S. started driving up their credit-card balances. That, in turn, has propelled issuance of card-backed bonds to a record pace.
Defaults are rising among credit-card borrowers, however, creating fears of a downturn mirroring the one that just took place in the home-loan sector. “Just how high credit card losses go will depend heavily on the extent of the credit crunch,” J.P. Morgan researchers wrote in a report last week. “Banks will be challenged to balance profitability with rising credit losses and funding costs.”
Still, it’s possible that credit cards will soon surpass non-U.S. mortgages as the top asset class. Securitizations of non-U.S. home loans totaled $29.3 billion during the first quarter.
Overall, J.P. Morgan managed $15.4 billion of asset-backed securities, mortgage bonds and CDOs worldwide during the first three months of the year, capturing an 11.7% market share. Credit-card deals issued in the U.S. accounted for well over half of that total.
A year ago, Citi was the number-one bookrunner, with J.P. Morgan in second place. Now Citi is second, with $14.5 billion of 2008 transactions under its belt for an 11.1% slice of the market. About a third of those deals were backed by credit cards.
BofA moved up six notches from last March, to third place, by earning $14.2 billion of league-table credit. Royal Bank of Scotland, meanwhile, moved up one spot to fourth place thanks to a strong showing in the non-U.S. mortgage sector. Deutsche Bank rounds out the top five.
J.P. Morgan, Citi and BofA also topped the U.S. league table, in the same order. Together they captured $30.2 billion, or 60%, of the $50.4 billion of deals brought to market in the States during the January-March stretch. A year ago, U.S. production logged in at $214.1 billion.
Citi would have finished first in the U.S. if the ranking excluded underwriting assignments from the bookrunners’ affiliates, followed by J.P. Morgan and Barclays.
Citi has done almost nothing in Europe this year though, after finishing the first quarter of last year in fourth place. The bank now ranks 25th among bookrunners in the region, which saw a paltry $49.1 billion of issuance over the last three months, down from $146.1 billion a year ago.
RBS is the current market leader in Europe, with $5.1 billion of first-quarter deals. ABN Amro and Alliance & Leicester follow.
In the market for private-label mortgage bonds in the U.S., just $9.2 billion of transactions have taken place year-to-date, down from $157.3 billion a year ago. Deutsche is the leader in that area, followed by Credit Suisse and RBS. None of those banks was in the top three at this point in 2007.
The CDO bookrunners’ derby is also hardly worth mentioning this year, as only $14.1 billion of deals have made it to market. That worldwide total, led by $10.1 billion of leveraged-loan securitizations, is down from $148.1 billion a year ago. With former market leader Merrill Lynch in deep trouble, Citi now leads the CDO-bookrunner field, followed by Deutsche.
Asset-Backed Alert’s various rankings around the world account for publicly offered and privately placed securitizations. They exclude continuously offered products, such as those from commercial-paper conduits, and the swap portions of synthetic issues.
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