This brief assesses the extent of the current problems and the future for investing in these securities. Please note: This brief does NOT discuss MBS pricing or estimate future MBS asset values.

Scope

Sizes the historic MBS market by issuance through 2006 in the US, Europe, the UK and Australia, and presents the size of worldwide exposure to US MBS Assesses MBS exposure on a company level by identifying the MBS balance sheet exposure for 38 of the world's largest banks in the US, Europe and Asia

Highlights

While agency securities have traditionally accounted for the majority of MBS issued, its share has dropped from around three quarters in 1996 to under half by 2006. Private label MBS issuance accounted for $743 billion in 2006 and was the fastest growing issuance sector in the last three years. Although Australia was the third largest single country to issue securitized assets in 2006, issuing $102 billion of these assets (90% of which, or $90 billion are MBS), the structure of its market should ensure that it won't face the same sub-prime issues that the US is seeing. European-based banks reported almost $300 billion in MBS on their balance sheets as of the end of 2006. This equates to almost three-and-a-half times the total profits reported in 2006 by the same banks. It would take write-downs of 29% on average across these balance sheets to equal the total profits reported by the banks in 2006.

Reasons to Purchase

Assess the scope of MBS issuance historically in the US, Europe, the UK and Australia. Analyze which regions have the most exposure to mortgage-backed securities based on balance sheet analysis of 38 of the worlds largest banks. Identify which banks have large reported MBS exposures.