Does anybody work with structured finance ? MBS, ABS, etc… What is it like? Do you enjoy it? Pro’s Con’s etc? I am interviewing for an analyst position soon and the job seems pretty interesting. Tks!
The industry is pretty shaky right now… http://www.businessweek.com/news/2010-04-07/sec-may-force-sellers-to-retain-portion-of-asset-backed-debt.html It’s a very specialized sector of FI, since you analyze not the companies, but rather the deals themselves (collateral, structure etc)… Very quantitative nature of analysis… I enjoy it overall but don’t feel good about the sector’s future…
Thanks for the inputs krnyc… This is for a junior position, My previous job was with debt restructuring/m&a, middle market . I am more concerned with what type of person is the good person for this kind of work, and consequently how I need to portray myself as… Please let me know if I’'m right, but from what I understand the succesfull guy here is one that is very good with people, besides being a good quantitive guy, because of the interaction with Ibankers, lawyers, investors and so on…that part attracts me and that’s what I think I will try to sell. I am really a people’s person and enjoy the interaction. What else do you think consists of good qualities they look for? Tks in advance, Fernao
Which position are you interviewing for? On the sell or buyside? Can’t tell you much about the sellside, but on the buyside you’ll get to interact with the banks’ sales representatives, issuers etc when they come to pitch the deals… But still most of the time you spend doing quantitative stuff like credit/collateral analysis, modeling (if it’s a private transaction)… Hope this helps
structured is much more involved than straight bonds or equities. its good to learn because you see the true legal value of the securities and what can be done with an asset. structured assets are very different, though, so you should try to specify what you’re getting into (cmbs/rmbs/abs/cdo/clo/cdo^2, etc.) a lot of people are going to tell you its a dead business, but there are a lot of rumblings that differ
Thanks for the input guys…It’s gonna be residential MBS, Future Flows etc
yeah, that’s blowing up right now. the govt is stopping buying so everyone’s looking to package their own stuff. look into general structures, ratings, tranches, PAC, senior/subordinates and equity tranches. understanding the prepayment measurements would be good to know.
“the govt is stopping buying so everyone’s looking to package their own stuff.” Could you expand a little more on tat I’m not quite sure I get it. Thanks for the attention
On the application I’m taking to the interview there;s something like “What’s the minimum paid required” wtf… how do you guys go about answering that?
You write “negotiable” on the application under pay desired. Also, you don’t post on AF and use your real first name.
brazilatz Wrote: ------------------------------------------------------- > “the govt is stopping buying so everyone’s looking > to package their own stuff.” Could you expand a > little more on tat I’m not quite sure I get it. > Thanks for the attention its a pretty major program and its public so you should be able to find out about it. studying up on that should give you a pretty good advantage. look into why the structures are built the way thery are.
I’ve worked in securitization for over 7 years on the issuer and IB side. While many people say the industry will die, it will not. Companies require financing for their assets. They can either get it through corporate debt using their regular corporate ratings, get it through equity, or sequester the assets and structure them to a rating higher than the corporate rating. The simple fact is that it’s far cheaper for companies to segregate the assets and fund them at a higher rating than their corporate rating. Where else will they fund? Nowhere else.
spierce, I like your perspective, makes sense to me. Thanks!
brazilatz Wrote: ------------------------------------------------------- > spierce, I like your perspective, makes sense to > me. Thanks! It’s not going to be an easy few years. There’s also the SEC rules regarding the Nationally Recognized Statistical Rating Organization (NRSO, Moody’s, S&P…etc) rating any deal having to publish the rating data and methodology so other non-engaged NRSO’s can see the data. That’s a nightmare. Combine that with BASEL II issues and BASEL III coming up, as well as issues around off-balance sheet going way (FAS 140 died, FIN46 under fire), you get a pretty bad regulatory environment. However, if anything, the market is *very* good at innovating other structures. But, as I said above, the fact remains that companies have assets they need to sell in order to originate other assets. Whether that’s done through the conduit market, the term market, or PE/Hedge/Private Placement, it’s gonna happen and the vehicle to do it is securitization. You *need* securitization to isolate the assets from the Servicer/Seller BK, structuring higher ratings than the S/S. Even in the worst of it there were structured deals to be done. Heck, Wyndham Timeshare got a ‘A’ deal done at Swaps+300bps (4.5x all in). That same deal cost them more than double that this time last year. It’s sad the politicians are trying to crack down on the legitimate securitization market, it’s really fvcking with a lot of companies’ funding strategies and reducing the ease of originating new assets.
I don’t quite understand why senior tranches held a lot of systematic risk, which made them appear quite attractive to investors given their good yields compared to similarly rated bonds, but in fact they were a lot riskier than they should be given their yield . Why did the senior tranches held a lot of systematic risk?
This is from a HBS paper from Joshua Coval: " In particular, senior structured finance claims have the features of economic catastrophe bonds, in that they are designed to default only in the event of extreme economic duress. Because credit ratings are silent regarding the state of the world in which default is likely to happen, they do not capture this exposure to systematic risks" How is credit ratings silent regarding the state of the world in which defaults could happen, and why are the junior tranches overcompensated?
help??? hehehe
last try? any help?hehe
brazilatz Wrote: ------------------------------------------------------- > I don’t quite understand why senior tranches held > a lot of systematic risk, which made them appear > quite attractive to investors given their good > yields compared to similarly rated bonds, but in > fact they were a lot riskier than they should be > given their yield . Why did the senior tranches > held a lot of systematic risk? What similarly rated bonds? I think the primary problem is that *none* of the rating agencies, nor the banks, priced in systemic downturns in credit. Having worked at a securitization issuer with an 80bn securitization trust, their “plans” for a credit downturn were a fvking joke. They never accounting for a massive decline in housing, the resulting credit crisis, nor losing access to issuing AAA bonds. I laughed at the whole idea that their “fortified funding” plan only accounted for AAA bonds with minimal subordinate tranches (it was a master execution trust). When it comes down to it, nobody thought housing prices would decline. Bubblehead mentality was everywhere and the risks associated with housing were not accounted for. The biggest factor in the housing downturn was the marginal utility of a house that was underwater. Nobody wants them even if they still have a job. Your car, credit card, and timeshare have marginal utility (provided it still has wheels, borrowing capacity, and vacation usefulness). However, when it comes down to the changing viewpoints on housing, where it used to be a HOME and was now an INVESTMENT, nobody accounted for the idea that obligors would dump their investment. Everybody kept thinking a house was a HOME and defaults would remain low. That’s why defaults for even subprime autos never got that bad, credit cards are bad but not as bad as housing, and timeshare never got close to having a AAA principal loss. Thus, it wasn’t systemic risk that caused problems, it was asset class risk and the hubris of “new paradigms” in analyst thinking. Everybody was a bubblehead. Hell, I was on here back in 2005 talking about the bubble and people thought I was nuts.
brazilatz Wrote: ------------------------------------------------------- > This is from a HBS paper from Joshua Coval: > " In particular, senior structured finance claims > have the > features of economic catastrophe bonds, in that > they are designed to default only in the event of > extreme economic duress. Because credit ratings > are silent regarding the state of the world in > which default is likely to happen, they do not > capture this exposure to systematic risks" > > How is credit ratings silent regarding the state > of the world in which defaults could happen, and > why are the junior tranches overcompensated? Personally I think Coval is wrong. Even though the CRAs aren’t *explicit" about the scenarios in which the worst default would occur, it’s pretty easy to extrapolate when they would occur. For example, I once ran a model on how AAA credit card bonds could lose $1 of principal. The scenario resulted in ~40% defaults with payment rates going to single digits. That is near apocalypic. Consider timmeshare loans. They have a 5x stress on AAA losses. Typical prime timeshare loans default at 15%. That would mean that 75% of obligors default in a AAA scenario. Then consider that 15% of houses defaulting resulted in huge losses (75%+) on AAA subprime RMBS tranches. Interesting dichotomy eh? Do you think that they over-estimated timeshare and underestimated housing? In what event would 40% defaults on CC’s occur or 75% losses on timeshare? Ohhh, a few major state capitols and DC getting nuked. As far as sub tranches being over-compensated…by spread? Depends on the tranche and asset class.