One of our friends, let's call him 'R' for short, sent some good info on Wachovia below so I thought I would talk about the monolines again.
Monolines, as if it is any surprise, are surviving on fumes. The CDO story is breaking once again (as if defaults ever got better) but this time maybe the final blow. Very few, other than the monolines themselves, believe they actually have the capital to support future claims levels and news like we are getting today should make that apparent to even them. Just remember, every time you see a press release such as 'housing values drop x% nationally', 'S&P downgrades 300 AAA tranches from 100 Alt-A deals', 'foreclosures jumped last month', even 'existing home sales down more than anticipated', etc, that ultimately, it weakens the the infrastructure of the security leading to more losses.
I still think the monolines going down is a large threat to the financials and credit market in general. It could literally happen at any time or never.
By the way....why such focus on the CDO anyway? The CDO universe is small compared to the whole loan and mortgage-backed security (MBS) universe. And whole loans and MBS are owned by a much wider investor base. MBS make up CDO's for Pete's sake. It seems that all this hoopla over a few banks taking big hits on CDO's is hiding the much greater exposure and losses that must be occuring on the CDO components in order for the CDO itself to sustain a loss. -Best, Mr Mortgage
FROM WACHOVIA THIS MORNING (will get charts up soon but data below speaks for itself)
As a supplement to our CDO Collateral and CDO Tranche Downgrade Reports, Wachovia CDO Research presents our summary of ABS CDO Default Statistics.
Exhibit 1 shows the count and volume of ABS CDO events of default by vintage, along with total ABS CDO and total CDO issuance, for the years 2004–2007. Our volume statistics represent USD CDO issuance, (based on original liabilities and equity), as reported by Intex. We classify CDOs according to collateral pools; ABS CDO issuance in Exhibit 1 displays the volume of CDOs with structured finance collateral and excludes CRE and TruP CDOs.
Using S&P data, we currently track 165 ABS CDOs totaling $185.9 billion that have tripped their event-of-default triggers between October 2007 and April 21, 2008. ABS CDOs in default represent 27% by count and 32% by volume of total ABS CDO issuance since 2004. In addition, these defaults equal 11% by count and 17% by volume of total CDO issuance. For vintage 2007, 59% by count and 63% by volume of ABS CDOs issued have tripped EOD triggers.