NEW YORK-May 30 - Four investment banks snapped up a massive US$8.7 billion bid list of legacy non-agency RMBS auctioned off by Lloyds TSB on Thursday.
The bid list of private-label mortgage bonds — known as a bid wanted in competition, or BWIC — was divided into five groups: Credit Suisse bought Group 1, Morgan Stanley bought Groups 2 and 3, Goldman Sachs took Group 4 and Bank of America bought Group 5, according to Adam Murphy, president of Empirasign Strategies, a capital markets trade database.
Lloyds TSB unloaded the U.S. non-agency legacy RMBS on to the market through a BWIC with 256 line items.
The sale was part of the lender’s plan to shore up capital by selling non-core assets after the Prudential Regulation Authority finalized capital requirements last week.
The bid list is the largest secondary-market all-or-nothing mortgage-bond trade since last year’s massive Maiden Lane sales from the New York Fed.
The list comprised subprime, Alt-A, and prime RMBS issued between 2005 and 2007. Price talk averages in the 80-cents-on-the-dollar range, according to the Empirasign database.
The securities were broken up into five groups corresponding to several large unwound CDOs from the Picard Funding trusts, according to traders.
These trusts were not pre-crisis CDOs, but were set up by Lloyds in 2009 to house portfolios from HBOS and related entities, such as Dragon Securities and the Grampian securities arbitrage conduit. The bonds were never publicly marketed, but bonds from Picard Funding 2 and 3 were used as repo financing vehicles with JP Morgan, following an amendment to add 144A documentation in November 2010.
JP Morgan bought the Class A and B in both vehicles, an original face value of US$4.038 billion, with an agreement that Bank of Scotland would repurchase them.
The bond on today’s list with the highest original face value is HMBT 2005-3 A1, it was originally worth US$410 million.
Returns on US private-label legacy RMBS have been up recently after improving housing data have buoyed the market. Returns on the once-battered bonds were even higher last year, making the RMBS trade a popular one among hedge funds in 2012.