The heads of commercial mortgage bond trading for Citigroup Inc. and Goldman Sachs Group Inc. have left the firms this week as the market is roiled by sovereign debt crises and new deals are cut back or put on hold.
Warren Geiger left Citigroup, according to a statement today from the New York-based lender. He joined from American International Group Inc. in 2004, according to records from the Financial Industry Regulatory Authority. His exit followed the departure of Matthew Salem from Goldman Sachs, a person familiar with the situation said earlier this week.
The banks were forced to pull a $1.5 billion commercial-mortgage bond offering that had already been placed with investors after Standard & Poor’s said yesterday it wouldn’t rate the notes because of a discrepancy in how it graded the transaction. S&P’s decision came after investors pushed back on deal terms and demanded higher yields on $3 billion of bonds sold last week.
“The CMBS market remains a challenge going forward and we’re still at an early stage of the recovery,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York in a telephone interview. “The rating agencies are much more in control than perhaps they were prior to the crisis.”
Geiger’s departure is unrelated to the review by S&P of its ratings on the offering, Danielle Romero-Apsilos, a spokeswoman for Citigroup, said today in an e-mailed statement. “The suggestion that it is related is totally false,” she said.
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment.
Yields on commercial mortgage bonds have risen as investors pull back amid a rush of offerings. Deutsche Bank AG and UBS AG cut a planned sale of commercial-mortgage backed securities by more than 36 percent to $1.4 billion, according to people familiar with the sale.
The Goldman Sachs, Citigroup deal won’t close as planned because S&P is reviewing its criteria for commercial mortgage-backed securities and can’t provide a rating, the banks said in a joint statement.
The ratings company won’t give debt grades to any new transactions that are based on certain criteria, New York-based S&P said in a separate statement.
“Ratings are a condition precedent to closing and settlement,” Goldman Sachs and Citigroup said in their statement. “Standard & Poor’s had previously informed Goldman and Citi that they were prepared to rate” the transaction, they said.
S&P “is reviewing the application of our conduit/fusion CMBS criteria in relation to the calculation of debt service coverage ratios,” the risk assessor said in its statement dated yesterday. ’’The review was prompted by the discovery of potentially conflicting methods of calculation.’’
The banks had overhauled the transaction after investors demanded more protection from losses amid concern that ratings from S&P and Morningstar Inc. didn’t accurately reflect the risks, people familiar with the matter said last week. They placed the securities totaling $1.5 billion with investors last week, according to people familiar with the transaction.
Goldman Sachs and Citigroup boosted the buffer that protects AAA securities from loan defaults by increasing the amount of lower-ranked debt that is first to absorb losses, the people said. The so-called credit enhancement on the highest-graded debt was raised to 20 percent from 14.5 percent.
Peaked in 2007
The extra yield investors demand to hold the top-ranked portion of bonds backed by commercial mortgages has risen 5 basis points to 214 basis points over Treasuries since June, according to Barclays Capital data.
More than $21 billion of commercial-mortgage bonds have been sold this year, compared with $11.5 billion in all of 2010, according to data compiled by Bloomberg. Sales of the debt peaked at $234 billion in 2007, helping fuel a boom in property prices. Issuance plummeted to $12.2 billion in 2008 as souring subprime-home loans infected credit markets. The market stayed closed until November 2009, choking off funding to borrowers with debt coming due.