Issuance of CDOs may vanish!

A report issued by Aite Group found that only $1.5 billion in CDOs backed by asset-backed securities have been issued this year—all from three deals. By comparison, $226 billion worth of ABS CDOs were issued in 2006. With less collateral to securitize into CDOs and no ready buyers in sight, ABS CDO issuance has virtually disappeared. Report author John Jay doesn’t see that changing anytime soon. CDO arrangers, rating agencies and investment banks all had profit structures that “were too enticing to be dismissed.” Thus, collateral managers ended up producing as many CDOs as possible. The arbitrage CDO business model will “cease to be for the foreseeable future,” he predicted.