A cracking time: Banks turn to CDO unwinds

Banks are getting rid of legacy collateralised debt obligations by cracking them open and selling the collateral – a trend driven by investor demand for the assets and growing capital pressure on the banks. But it can be costly, complicated and even controversial. By Michael Watt

Once upon a time, collateralised debt obligations (CDOs) were seen as a kind of financial alchemy – converting relatively low-rated mortgage-backed securities into AAA-rated bonds that were popular with investors around the world. When the crisis hit in 2007, the chemistry fizzled out. CDOs quickly turned from gold back into lead, and banks have been trying to get them off their balance sheets ever since.

But the stars are now aligning to provide a way out. With interest rates still at record