Abacus bank case12/9/2023 ![]() There is more risk because the underlying asset (RMBS) may include more debtors that may not be capable of making their mortgage payments monthly. This interest rate is higher than the Class A interest rate because the Class B securities are inherently more risky.Īs you go into the mezzanine tranches (Classes C and D) you can see that the interest rate gets higher: this is because the lower classes are taking on a lot more risk. These Class A securities are in the Super Senior tranche.Ĭlass B securities are also in the Senior tranche as you can see in the chart, they are rated AA, with an interest rate of 5.80%. Class A securities, rated AAA, yields the lowest interest rate (5.51%), but are also the safest investment because their interest and principal is paid first from the RMBS cash flow. In our example, listed below, there are five classes (tranches) of securities that a buyer can invest in. Depending on the amount of risk he wants to assume, the buyer then selects the types (tranche and amount) of securities he wants to purchase from the SPV (2). These assets (or collection of RMBS) are stored in a Special Purpose Vehicle, which then separates the RMBS into tranches (risk levels). So how does it work? First, the seller, or bank, sells a collection of RMBS to a buyer (1). They rely upon the cash flow generated from RMBS to pay the interest payments, and eventually, to pay back the principal. ![]() CDOs are basically bonds: one bank borrows money from another bank in exchange for interest payments and the principal amount due back at maturity. Now, I want to address CDOs, or collateralized debt obligations, which are only slightly more complicated than RMBS. Residential Mortgage Backed Securities (RMBS) I next want to introduce Residential Mortgage Backed Securities, Collateralized Debt Obligations, and Credit Default Swaps. Now, hopefully you all have a basic understanding of the major players involved in the Abacus transactions. Subprime residential mortgage-backed securities (RMBS) Synthetic collateralized debt obligation (SCDO) The following two are more complicated will be broken down soon. ABN AMRO: one of the largest banks in Europe during the relevant period ACA: third party with experience analyzing credit risk in RMBS IKB: a commercial bank headquartered in Dusseldorf, Germany One of Goldman’s Vice Presidents, Fabrice Tourre, played a key role in the Abacus transaction. GS&Co structured and marketed ABACUS 2007-AC1. Goldman Sachs: a global investment banking, securities and investment management firm headquartered in New York City. SEC: The Securities and Exchange Commission, created in 1934, holds primary responsibility for enforcing federal securities laws and regulating the securities industry. ![]() I’ve underlined and bolded some terms/players that will be important in understanding the Abacus transactions, and defined the easy ones here: Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.” “The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (SCDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages (April 16, 2010) I hope you enjoy.įirst, an Introduction to the SEC Complaint and Some Key Players Weeks of research later, here is my explanation of the SEC complaint against Goldman Sachs, written specifically for non-financial experts like me. ![]() Like many other students, I’ve followed the news about Goldman with curiosity, but I’ve been puzzled by such terms as “collateralized debt obligations” and “credit default swaps”. ![]() In the last few weeks, what’s been going on with Goldman Sachs has shaken investor confidence in the financial markets. ![]()
0 Comments
Leave a Reply.AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |