By           Sarah Mulholland and Donal Griffin               Jul 29, 2011 4:26 AM GMT+0800 (bloomberg)

The heads of commercial mortgage bond trading for Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS)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 theFinancial Industry Regulatory Authority. His exit followed thedeparture of Matthew Salem from Goldman Sachs, a person familiarwith 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 withinvestors after Standard & Poor’s said yesterday it wouldn’trate the notes because of a discrepancy in how it graded thetransaction. S&P’s decision came after investors pushed back ondeal terms and demanded higher yields on $3 billion of bondssold last week.


“The CMBS market remains a challenge going forward andwe’re still at an early stage of the recovery,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York in atelephone interview. “The rating agencies are much more incontrol than perhaps they were prior to the crisis.”


Geiger’s departure is unrelated to the review by S&P of itsratings on the offering, Danielle Romero-Apsilos, a spokeswomanfor Citigroup, said today in an e-mailed statement. “Thesuggestion that it is related is totally false,” she said.


Michael DuVally, a spokesman for New York-based GoldmanSachs, declined to comment.


Planned Sale Yields on commercial mortgage bonds have risen as investorspull back amid a rush of offerings. Deutsche Bank AG and UBS AGcut a planned sale of commercial-mortgage backed securities bymore than 36 percent to $1.4 billion, according to peoplefamiliar with the sale.


The Goldman Sachs, Citigroup deal won’t close as plannedbecause S&P is reviewing its criteria for commercial mortgage-backed securities and can’t provide a rating, the banks said ina 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 theirstatement. “Standard & Poor’s had previously informed Goldmanand Citi that they were prepared to rate” the transaction, theysaid.


S&P Review S&P “is reviewing the application of our conduit/fusionCMBS criteria in relation to the calculation of debt service coverage ratios,” the risk assessor said in its statement datedyesterday. ’’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 lastweek, 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 propertyprices. Issuance plummeted to $12.2 billion in 2008 as souringsubprime-home loans infected credit markets. The market stayedclosed until November 2009, choking off funding to borrowerswith debt coming due.