CDO Creators Seek Redemption, And Profits, From Mortgage Market

Bloomberg (07/02/08); Shenn, Jody; Keehner, Jonathan
New Bloomberg research shows that at least 50 percent of the top 20 managers of collateralized debt obligations tied to subprime-mortgage securities now have funds seeking to profit from home loans and are aiming for double what they have already raised. Roy Smith, a former Goldman Sachs Group Inc. partner who now teaches finance at New York University, states, "CDO managers may be seen as guys who created garbage and now want more money to sort out their own junk." CDOs are created by bankers and managers bundling together such assets as mortgage bonds, buyout loans or preferred shares, with income from those holdings allocated to repay investors. JPMorgan Chase & Co. reports that issuance of mortgage-related CDOs rose to $227 billion in 2007 before plummeting to less than $1 billion this year.