Investor interest in equity-default swap portfolios is firing up again as their hunt for yield prompts a more favorable eye toward innovation. Credit Suisse has issued a string of collateralized equity default obligations, whetting investors' appetites for more.
JPMorgan was first a few years ago (DW, 6/2/03), but after an initial buzz about the structure, only a handful of portfolio deals were closed. "[Credit Suisse] has been quite clever and seems to have picked up the ball," said a structuring head at a rival house. Stephane Diedrich, managing director in equity derivatives at CS in London, was traveling and could not be reached.
Bankers say EDS are back because of relative tightness of credit spreads. Morgan Stanley registered a deal in the U.S. last month (DW, 6/5) but this has not yet closed. Calls to the equity structuring desk regarding the deal were referred to Mark Lake, spokesman, who declined comment on the deal's pricing date. Other firms are also poised to move. "It's more in the marketing stage than execution stage but there are more inquiries," said an official at Deutsche Bank.
One official attributed the surge in interest to traditional equity derivative investors being pitched. "The advantage of the credit derivatives world is the rating," said Edouard Huntziger, director in structured derivatives at SG Corporate & Investment Banking in Hong Kong, adding, "Ratings mean you can access the institutional market." Huntziger said his team is currently working with the firm's equity derivatives group to develop such products for the Asian market.
