-- Daniel OLeary
Wall Street is full to capacity and cant take on much more subprime residential mortgage securitization risk, according to a senior analyst at a major investment bank, noting the poor results from Thursdays Maiden Lane II auction.
The Federal Reserve Bank of New York and BlackRock Advisors cleared only roughly 50%, or $1.9 billion, of the portfolio, the worst performing auction to date.
Two to three months ago it was certain the Street could absorb the whole portfolio, the analyst said. It cant, obviously. Twenty percent of [the diminished appetite] is due to wider credit spread fundamentals, 50% of it is the simple oversupply of bonds and 30% is a weakening in housing market technicals.
The portfolio is made up of a variety of subprime RMBS the Fed bought from American International Group at the height of the crisis as part of the latters bailout (TS, 4/6).
An internal memo from a primary deal detailing the auction said most of the bonds that cleared were on average three to four basis points below price talk. The composition of the list was 67% non agency and 33% subprime. Of the approximately $2.55 billion in non-agency out for the bid 57% or $1.47 billion traded. In subprime space only 34% of the $1.25 billion out for the bid traded, the memo said. The analyst said the low clearance rate together with the low clearing levels showed the Street is now unwilling to pay above the Feds minimum asking price.
Spokespeople at the Fed and BlackRock did not return phone calls.