Monday, November 19, 2007 0 comments ++[ CLICK TO COMMENT ]++

Swiss Re Takes Losses on MBS CDO

Swiss Re just reported a 1.2 billion CHF (swiss franc) mark-to-market loss on their credit products. This is important because Swiss Re is an insurance company so their losses may be more similar to what monolines face. Anyone looking to invest in monolines should take note of potential losses (but read my comment below questioning whether they are similar to monoline contracts). According to their presentation on the losses, here are some bullet points:

  1. Transactions are structured as CDS protection on MBS portfolio
    managed by third party
  2. First was written in 2006, second in 2007
  3. Originally structured to attach at super senior level, with risk of loss considered remote
  4. Underlyings are MBS, both CMBS and RMBS (in prime, midprime and subprime form) and CDOs

Their losses are from the CDS protection they wrote. It is not clear to me whether these CDS transactions are similar to what CDS transactions monolines write. The presentation mentions that their monoline division doesn't see any losses yet (but most of it is in municipal bonds whereas Ambac has greater exposure to CDOs). I fired off an e-mail to their investor relations and hopefully they'll provide some clarity on whether the CDS that resulted in the losses is anything similar to CDS that monolines write. I suspect that the losses are from straight ABS contracts, rather than the ABS protection that monolines write.


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