CDO Sales May Tumble 65% in 2008 on Subprime Slide
By Jody Shenn
Dec. 4 (Bloomberg) -- Issuance of collateralized debt obligations will tumble 65 percent next year, with ``little or no'' sales of CDOs made up of structured-finance securities such as subprime-mortgage bonds, JPMorgan Chase & Co. says.
About $163 billion of new CDOs will be sold, down from an estimated $469 billion this year, according to a report yesterday from New York-based JPMorgan analysts led by Christopher Flanagan. The decline will occur with ``the very concept of securitization under pressure,'' the analysts wrote.
Securitization, or the packaging of assets into securities, has slowed amid losses on home-loan debt. Many mortgage-linked securities originally carried investment-grade ratings, only to be downgraded at an unprecedented pace following record homeowner foreclosures. CDOs are created by packaging pools of assets into new securities with varying risks. None were sold in the U.S. last week, according to JPMorgan data.
Losses for banks and brokerages from the credit-market seizure have totaled $66 billion, as companies including Merrill Lynch & Co. and Citigroup Inc., both of New York, took writedowns largely related to CDOs. Default rates on subprime loans, made to borrowers with poor credit, have reached records.