Goldman-issued subprime bonds lead downgrades: Citi
A foreclosure sign in front of a home in California, May 2, 2007. Goldman Sachs Group subprime mortgage bonds issued last year are being downgraded by rating companies at the fastest rate of any issuer, according to Citigroup research dated June 22.
Credit: Reuters/Mark Avery
NEW YORK (Reuters) - Goldman Sachs Group Inc. (GS.N) subprime mortgage bonds issued last year are being downgraded by rating companies at the fastest rate of any issuer, according to Citigroup Inc. research dated June 22.
Nearly 70 of Goldman's GSAMP-issued bonds, which include subprime loans from a variety of lenders, have been downgraded by Standard & Poor's and Moody's Investors Service in the year through June 15, with 60 of those issued in 2006, analysts at Citigroup Global Markets said in a weekly note.
Downgrades are accelerating on mortgage bonds backed by loans to the riskiest borrowers following an ongoing surge in delinquencies and foreclosures. Lenders loosened underwriting standards in the years through 2006, creating loans whose poor quality became apparent as the U.S. housing slump began.
Mortgage bond sales and trading has helped boost profit at Goldman Sachs and other Wall Street banks, who compete for loans from subprime lenders and package them as home equity asset-backed securities for sale to investors.
Goldman Sachs spokesman Michael Duvally declined immediate comment.
The market for credit default swaps has suggested investors see GSAMP bonds as relatively safe. At the end of May, generic credit default swap spreads on low-rated GSAMP issues were 485 basis points, compared with more than 500 basis points on Bear Stearns Cos.' BSC.N BSABS subprime bond issuer and above 1,000 basis points for Lehman Brothers Holdings Inc.'s LEH.N SAIL issuer.
Merrill Lynch & Co.'s MER.N First Franklin subprime mortgage bonds have seen the second highest number of downgrades, though most of the bonds were issued in 2003, the Citigroup analysts noted. The downgrades on those bonds could suggest that borrowers may be unable to refinance adjustable-rate loans, they said.
