Some credit houses are holding off adding third-party managers to synthetic collateralized debt obligations referencing asset-backed securities because there is not enough juice in the underlying assets to make the play economically viable. "To cover manager fees and risk management costs, it's very difficult to get the numbers to work," said an official at a top-tier bank in London. "We have taken a step back on these deals."
One analyst said returns on AAA-rated ABS assets, including RMBS and CMBS, are hovering around 20 basis points, but he has seen as low as 8bps. A London-based CDO manager agreed tight returns were halting transactions being issued, adding in synthetic ABS portfolios a lack of diversity may also be turning people away.
