Markit shelves plan for Auto loan index

Discussion in 'Wall St. News' started by makloda, Mar 13, 2008.

  1. This is kinda funny ...

    Markit Shelves Plan for Index Linked to Auto Bonds

    March 13 (Bloomberg) -- Markit Group Ltd. shelved plans to create an index that would have allowed investors to bet on the $200 billion market for securities backed by auto loans.

    Markit Director Ben Logan confirmed the index was put on hold because of a lack of support from dealers.

    The decision follows criticism from analysts at Merrill Lynch & Co. and Wachovia Corp., who said the index would drive down prices of the underlying bonds. :p Markit had been in talks with firms including Lehman Brothers Holdings Inc., Morgan Stanley, and Bear Stearns Cos. to create and index allowing investors to speculate on auto-loan securities from issuers such as Detroit-based GMAC LLC and Ford Motor Credit Co.

    The indexes would have worked in the same way as those for subprime and commercial mortgages, which have plunged as much as 88 percent in the past seven months as mortgage defaults rose to records.

    ``The lack of widespread support and the potential for diminished auto ABS demand will likely prevent the advent of an index, despite the seemingly good intentions,'' Merrill Lynch analysts led by James Leda in New York wrote yesterday. Analysts at Wachovia last week called it a ``terrible idea.''

    Reduced demand for bonds backed by auto loans would increase borrowing costs for issuers that raise capital in the asset-backed market, the Merrill Lynch analysts said. Asset- backed securities are bonds backed by receivables such as payments on auto loans, student loans and credit card debt.

    Increased borrowing costs for automobile companies would extend to consumers by making it more expensive to finance the purchase of new cars, the analysts said. In extreme cases, it could limit the ability of the companies to underwrite new loans.

    Markit owns benchmark indexes such as the ABX, which tracks subprime-mortgage debt, the CMBX for commercial-mortgages and CDX, which follows credit-default swaps.