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Banking

Citi boosts ABS buying through asset management arm

Citi Treasury Investments follows JPMorgan's lead with ABS fund strategy; other US dollar buyers likely to follow

JPMorgan‘s decision to essentially underwrite the return of the European asset-backed securities (ABS) market after 2007 is one of the most contrarian and successful investment strategies the market has witnessed.

Through its chief investment office (CIO), a global prop trading and cross-asset class asset manager for JPMorgan Chase, the US bank acted as keystone investor in all of the first deals to emerge after the Lehman collapse and the decimation of the market.

Committing billions, JPMorgan has seen a handsome return on this strategy, as asset prices have recovered and confidence returned.

The US bank has always been tight-lipped about its CIO investment strategy, but given the performance of AAA European paper throughout the cycle and the amount of liquidity that many US banks have to put to work, it is perhaps surprising that more shops have not followed its lead.

More and more US dollar buyers have committed to the UK residential mortgage-backed securities market consistently and in size in recent months, including US banks such as Citi and Wells Fargo, Japanese houses such as Norinchukin and Japan Post Bank, and Canadian buyers as well.

Euromoney has now learned that at least one – Citi – is now following the JPMorgan model and setting up a new asset management business devoted to investing in ABS. The bank has confirmed that the strategy will be run through Citi Treasury Investments but declined to comment further.

The timing of such a move is interesting given the extent of recovery that has taken place in this asset class, but rumours persist that other big buyers will likely follow suit. Bank of America might be one of them but this has not been confirmed.

For more on the challenges facing the European securitization market, see the March issue of Euromoney magazine.

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