If Lehman’s ABS CDO data (as presented by Barnett Hart) is accurate, then Goldman’s role in the ABS CDO market is both interesting and unique.
First recall that ABS CDOs (along with CDO squareds) were the worst performing CDOs by far and that this potential for truly disastrous performance is obvious to anyone who understands their structure. (ABS CDOs will one day probably be used to define “cliff risk”.) (Note Nomura document h/t Alea.)
Second, according to the Lehman data the ABS CDO league table for 1999 – 2007 (from Appendix A2 Panel D I calculate Total Balance/Sum of Total Balance) reads as follows:
Merrill Lynch 16.5%
Goldman Sachs 13%
Citigroup 12.3%
Wachovia 6%
Credit Suisse 5.7%
UBS 5.4%
Bear Stearns 4.3%
Deutsche Bank 3.8%
RBS 3.7%
Lehman 3.5%
Observe that the top three ABS CDO originators were responsible for 40% of the market and that Goldman was the number two originator. Table 4 of the Barnett Hart paper presents S&P ABS CDO information and indicates that a disproportionate share of Goldman’s ABS CDO origination took place in 2005 and 2006.
Third, it is clear that Merrill and Citi believed that the ABS default cliff was far enough away that senior losses were unlikely to occur. The evidence of this is the fact that Merrill and Citi carried large quantities of super senior ABS CDO risk on their balance sheets — and both had to be rescued in no small part because of their ABS CDO losses.
Goldman is a very different story. When Goldman originated ABS CDOs it was apparently careful to lay off the senior risk onto other parties (the growing difficulty of this undertaking probably explains the relative decline of Goldman’s ABS CDO origination in 2007).
Synthetic Assets 