Merrill launches MBS guide

Wealthy investors seeking high yields may be attracted to MBS assets.

Investment bank Merrill Lynch is heavily promoting the concept of mortgage-backed securities (MBS), an often overlooked asset class, at a time when private clients are faced with an overwhelming shortage of suitable opportunities. Merrill Lynch has published a definitive 500-page guide which aims to provide a detailed, impartial and analytical research tool for investors to compare MBS markets in Europe and Asia. “Given that high net worth investors are looking for new investment opportunities, mortgage-backed securities could be interesting,” Merrill Lynch’s managing director of international structured credit research, Alexander Batchvarov told PWM at the launch of the book. According to Mr Batchvarov, while these products are available to all parties, the primary focus has always been institutional investors due to complexity and levels of analysis required. “They are suitable for syndication of risk – known as tranching,” revealed Mr Batchvarov. “Investors can choose a tranche or risk profile from AAA to BB, given strict guidelines. Wealthy individual clients who are more interested in high yields can look at BB and BBB tranches. This is done, but not as often as it could be. These securities can definitely represent a portion of some wealthy individuals’ portfolios.” The mortgage backed securities market was pioneered in the US, but has recently taken off in Continental Europe and the UK. According to Merrill Lynch, international issuance is set to reach $150bn (E140bn) in 2003. “Through continual dealings with investors, issuers, and regulators, we realised there was a profound need for a common template for analysing and better understanding the different national mortgage markets and recent transitions they have undergone,” said Mr Batchvarov. The myriad of local differences includes the establishment of wealth through credit scoring in the UK and Holland. However, in Italy and Spain, loans are granted based on the relationship between lender and borrower.