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International RMBS, CMBS Sales Impacting Banks Globally

In international news, the sale of securitized bonds is causing concern for the secondary market. Analysts from ""Morgan Stanley"":www.morganstanley.com/ released a recent report indicating that securities earmarked for sale by the European banks holding the bonds could reach as high as $470 billion ($348 billion EUR).


Morgan Stanley's evaluation of the total amount of securities targeted for sales equates to between $228 to $336 billion ($169 to $249 billion EUR) in U.S. denominated assets and another $133 to $241 billion ($99 to $170 billion EUR) in European assets. The institutions seeking to liquidate securities holdings encompass lenders focused on deleveraging and distressed or ""bad"" banks, which include companies designed to manage legacy assets prior to the mortgage crisis.

For both lenders and ""bad"" banks, rising costs for funding and capital have weakened their positions, leading to the sale of assets. Speaking to _Reuters_, one banker at a small to midsize advisory firm noted, ""Bad banks are selling bonds due to higher funding costs because in some cases the cost of holding the bonds for the bank is higher than the coupons received.""

Additionally, a trader spoke to _Reuters_ regarding some recent bond sales, stating that a few banks had initiated asset sales during recent weeks and mentioning that some of the bonds in question carried issue dates prior to 2007. Morgan Stanley


maintains that the sales of assets aren't motivated by a single catalyst, and the company indicated that liquidation of well-rated assets was likely related to recruitment of funding, while the sale of failing assets was probably a sign of an entity focused on capital relief.

As to the assets that don't line up with either extreme, Morgan Stanley expressed doubt on any decision to sell bonds with a median rating, such as assets scored as Single A or Triple B. Morgan Stanley cited the potential effects of such a sale on capital ratios, and the company also stated that it was likely that different asset classes would experience varying results. One topical example from Morgan Stanley included the potential for price declines among unstable assets like sub-prime or optional ARMs due to greater market sensitivity to supply pressure.

_Reuters_' sources shared intelligence with the news outlet that indicated most banks in question were selling lower-rated assets, and the fund manager, whose name was not released, elaborated on the sales he'd observed recently saying that the key items sold were poorly-rated UK non-conforming residential mortgage-backed securities, as well as mezzanine commercial mortgage-backed securities. Reuters contact added that the ""bad"" banks were attempting to sell primarily mezzanine CMBS lines and some senior CMBS assets.

Morgan Stanley weighed in on the trans-Atlantic connection between the financial issues on both sides of the pond, saying, ""the linkages between the sovereign crisis in Europe and securitized product markets on both sides of the Atlantic are not as tenuous as they might seem at a first glance, and go well beyond generic risk-aversion that the crisis has engendered"".

Asset backed securities experts from ""JPMorgan Chase & Co."":www.jpmorganchase.com/ disagreed with some of Morgan Stanley's analysis, and the financial institution refuted Morgan Stanley's assertion that asset sales hurt the broader securities markets, pointing out that the dropping values of the correlating assets contributed more greatly to European deleveraging than the actual sell-off.

About Author: Abby Gregory


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