Dealers Vie For NY Fed CDOs, May Unwind Swap With Barclays
April 12 2012 - 5:27PM
Dow Jones News
At least six Wall Street dealers are preparing bids for more
than $7 billion in complex commercial-mortgage securities, which
are part of assets tied to the Federal Reserve Bank of New York's
bailout of American International Group Inc. (AIG), according to
investors briefed by dealers.
Deutsche Bank (DB, DBK.XE), Bank of America Corp. (BAC), Morgan
Stanley (MS), Credit Suisse (CS), Goldman Sachs Group Inc. (GS) and
Barclays (BCS, BARC.LN) are preparing bids for the debt securities,
the investors said.
The dealers are focused on so-called commercial-real-estate
collateralized-debt-obligations, which are a corner of the $47
billion face amount of debt held by the New York Fed portfolio
known as Maiden Lane III. They are primarily focused on dismantling
the so-called CRE CDOs because the underlying commercial
mortgage-backed securities are worth more as individual pieces and
could likely generate more trading revenue, the investors said.
But the liquidation rests on the elimination of an interest-rate
swap with Barclays, the counterparty in the derivative transaction.
As the swap was put on when interest rates were higher, the
contract has risen in value and would require a payment of more
than $1 billion to Barclays if the CDO was to be unwound, two of
the investors said.
Spokesmen for Deutsche Bank, Bank of America, Morgan Stanley,
Credit Suisse, Barclays, Goldman Sachs and the New York Fed
declined to comment.
Investors have intensified their focus on the CRE CDOs last week
after the New York Fed tweaked investment guidelines on the
portfolio, setting the stage for possible sales. A pair of
commercial-mortgage-bond CDOs issued by Deutsche Bank drew
immediate focus as BlackRock had been collecting preliminary bids
from dealers, a person familiar with the matter said when Dow Jones
Newswires first reported the development last week.
The potential for bulk sales of CDOs has rattled the market
because of the impact of additional supply, just as investors are
questioning the wisdom behind a four-month rally. The flare-up in
Europe's debt crisis and signs that the U.S. economic recovery was
slowing also decreased risk appetites, exacerbating a selloff in
CMBS.
The risk premium on a benchmark commercial-mortgage bond jumped
to 235 basis points over an interest-rate benchmark from 180 basis
points in March, giving back virtually the entire rally of 2012,
according to Credit Suisse's Locus analytics platform. CMBS spreads
were bid about 10 basis points tighter on Thursday, however, as
investors heartened by prospects of long-term low interest rates
turned back to riskier debt.
-By Al Yoon, Dow Jones Newswires; 212-416-3216;
albert.yoon@dowjones.com
Bank of America (NYSE:BAC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Bank of America (NYSE:BAC)
Historical Stock Chart
From Apr 2023 to Apr 2024