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Tuesday, June 26, 2007

JPMorgan: Planned CDO Sales Dry Up Amid Bailout

by Calculated Risk on 6/26/2007 05:00:00 PM

From Bloomberg: Planned CDO Sales Dry Up Amid Bailout, JPMorgan Says (hat tip Brian)

Planned sales of collateralized debt obligations backed mainly by subprime mortgages are drying up and may shut down amid concerns about the integrity of the market following the near collapse of hedge funds run by Bear Stearns Cos., JPMorgan Chase & Co. said.

The amount of U.S. high-grade, structured finance CDOs that are being offered to investors has plunged to $3 billion, from $20 billion a month ago ...

"We expect events surrounding warehousing liquidations last week to further slow, if not halt entirely, the new issue market," JPMorgan analysts led by Chris Flanagan in New York said in the report.
The damage to the $1 trillion CDO market could freeze what has been a large source of liquidity for the credit markets, Tim Backshall, chief strategist at Credit Derivatives Research LLC, said yesterday.
No wonder Dr. Altig asks: What's That Unpleasant Sound?
According to Lombard Street Research, it's a credit crunch. From the U.K. Telegraph:
The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.
Altig is rightly skeptical of the report, but I do think the sector specific credit crunch is definitely getting more severe, and might expand to other sectors (like M&A loans and CRE investments).