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Online Market to Help Release 'Toxic' Assets

New York-Online marketplaces may be one efficient way to detoxify a bank's balance sheet and provide a complementary tool to government efforts to revitalize the securities market.

SecondMarket, an online marketplace and auction platform for illiquid assets, says it is expanding to assist private investors and governments in the U.S. and abroad to address the so-called legacy asset problem. It has added specialized markets for mortgage-backed securities, whole loans and collateralized debt obligations to its centralized marketplace. The company said hundreds of its trading network of 2,500 buyers and sellers "have expressed an interest in purchasing residential and commercial MBS, CDOs and portfolios of various whole loans, including residential, commercial, construction, consumer and industrial loans."

"Today, the multitrillion-dollar MBS, whole loans and CDO secondary markets are nearly frozen. For the global economy to recover, it is critical to unfreeze these assets from the balance sheets of financial institutions around the world and restart the securitization markets," said SecondMarket CEO Barry Silbert.

Mr. Silbert is one of those who support the federal government's efforts to address the so-called legacy assets and restart the securitization markets within an independent, active, and well-organized secondary marketplace that provides data transparency and price discovery.

As a rule these types of assets are not easy to analyze and/or evaluate because related data are not fully traceable. Hence, the obscure nature of these assets creates an obstacle to investors trying to manage pricing valuations.

SecondMarket offers investors the ability to determine the value of these assets by providing data transparency. SecondMarket participants receive free aggregates of data on MBS, whole loans and CDOs. An added outlet is the SecondMarket Ecosystem, a network of third-party service providers that provide valuation, research, data, analytics, legal and transaction advisory services. Since its creation in 2004 SecondMarket has traded online a variety of illiquid asset classes including auction-rate securities, bankruptcy claims, limited partnership interests, and restricted securities and blocks in small capitalization companies. To date, over $1 billion in illiquid assets have been traded through SecondMarket.

To lead company expansion efforts SecondMarket hired two experts in the asset securitizations markets. Elton Wells, previously a director with Credit Suisse's structured products group, will head SecondMarket's MBS and whole loans markets. Adrian Radulescu, also a former director with Credit Suisse and head of its European leveraged finance CDO structuring desk in London, will head SecondMarket's CDO market.

Over the past six months SecondMarket said it has been preparing for the launch of these markets by adding staff, expanding technology support systems and developing key industry relationships. According to Mr. Silbert, the goal is to build a functioning secondary market that will help restart securitizations.

Bill Seidman, former chairman of the FDIC and Resolution Trust Corp. who serves as an advisor to SecondMarket, says the SecondMarket model is a solution for which market demand has been there for many years, since the market was challenged by financial crises in decades past. "When we were working with troubled bank assets during the S&L crisis, we were forced to do a lot of work to create a market for these assets," he said.

SecondMarket was founded in 2004 as a marketplace where hedge funds, private equity firms, mutual funds, among others, can trade illiquid assets including auction-rate securities, bankruptcy claims, whole loans, collateralized debt obligations, residential and commercial mortgage-backed securities, restricted securities and blocks in small capitalization companies.

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