WORLDWIDE SECURITIES SERVICES

Asset-Backed Securities Update

While Asset-Backed Securities (ABS) are monthly basis, vendors cannot secure
widely accepted as collateral in repo and the detailed knowledge of the Pfandbriefe
securities lending transactions in the underlying collateral necessary to
U.S., in comparison, the European ABS produce daily pricing. ABS Aircraft Loan
repo market is still relatively limited. ABS Car Loan
Having played a leading role in the JPMorgan sees the constantly ABS Credit Card Receivable
development of the U.S. market, expanding range of ABS pricing
ABS Home Equity Loan
JPMorgan is committed to continuing to information and the new ABS
do the same in Europe. classification standard as important ABS Manufactured Housing
steps towards the development of ABS ABS Student Loan
In response to client demand for in the tri-party collateral management
ABS Recreational Vehicles
increasingly detailed information related repo and securities lending market. An
to ABS, JPMorgan, under the auspices of established Pfandbriefe repo market, ABS Whole Business
Internal Standards Office (ISO), has and an additional $1.8 trillion in ABS Public Finance
developed a new classification standard. outstanding Asset-Backed and ABS Other
The new ABS classification standard, Mortgage-Backed securities in Europe1,
MBS Mortgage Pass Through
which becomes effective immediately, is already exists. The size of the U.S.
outlined in the table on the right. market, in which over $10.3 trillion is MBS RMBS REMIC or CMO
outstanding2, points to the potential for MBS Whole Loan
The new standard will allow collateral an equally buoyant market in Europe.
MBS Commercial Mortgage Backed
takers to specify a greater granularity in
MBS Stripped Mortgage Backed SMBS
their eligibility criteria for ABS than was ABS is one of a number of collateral
previously possible and is therefore an asset classes that JPMorgan has the
important development for our clients. ability to manage through its tri-party
collateral management repo and
Additionally, in line with client demand securities lending services. ABS is

200608
for pricing information for an increasing clearly more complex than traditional
range of ABS, JPMorgan is working debt securities and requires additional

JPMorgan Chase Bank, N.A.

closely with leading pricing vendors as
they expand their ability to support the
growing range of ABS types used in the
European market. Vendors are making
good progress although, due to the lack
of transparency surrounding the
attention to detail for use as collateral. Any collateral takers who
wish to update their collateral
The supplementary information required
schedules in light of the new
to fully describe ABS, the limitations in
classification standard or who
securing pricing information and the fact
require more information on
that the collateral value of these
JPMorgans tri-party collateral
securities decreases monthly as they management services should
2006 JPMorgan Chase & Co. All rights reserved.

collateral that backs them, pricing for
Collateralized Debt Obligations (CDOs)
tends to be limited. CDOs are often
actively managed transactions where the
manager has the option to buy or sell
collateral, subject to guidelines, at any
time. However, because the collateral
pool itself tends only to be reported on a
amortize, only increases the burden of please contact their usual
settling such repos through bi-lateral relationship manager.
mechanisms. A dedicated tri-party
collateral management repo and
securities lending service can be an
extremely valuable method for cost-
effectively managing such trades. 1, 2 Source: Thomson Financial

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