Sober Look | Oct 28, 2012 03:55AM ET
After reaching its peak of over $1.2 trillion reached in 2007, Asset Backed Commercial Paper (ABCP) outstanding has continued its decline. The rapid growth was originally triggered by the use of commercial paper to fund RMBS, CDO bonds, SIVs, etc. But in early 2007, as subprime defaults picked up, US money market funds stopped buying ABCP, forcing banks who backstopped the commercial paper programs to move CDO bonds, etc. onto their balance sheets (that's the sharp decline in late 2007 on the chart below). This is what ultimately caused Citibank and Wachovia to become insolvent.
JPMorgan: - It’s not surprising then that the largest ABCP programs currently are multi-seller conduits sponsored by US, Canadian, and Japanese banks—credits that investors have sought after away from the Eurozone. These programs continue to benefit from better pricing and market access compared to European administrators. For example, an A- 1/P-1 US ABCP conduit could obtain 1 [month] funding around 15bp (LIBOR - 5bp) versus an A-1/P-1 French ABCP conduit around 25-35bp (L + 5/15bp). Even Citigroup (A1/P- 2/F1) remains the largest overall and US sponsor of multiseller conduits. They currently fund below the French conduits in 1 [month maturity]. With that said, [Citibank's] funding capacity would likely be severely limited if they suffer any more ratings erosion such that they become a Tier 2 issuer.
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