Merrill Lynch has set up a structured credit arm within its principal finance operation and has appointed Steve Padovano, former global head of credit derivatives in New York, to spearhead the effort. The initiative comes as more firms look toward principal finance as a means of competing in an increasingly crowded marketplace. Padovano declined comment. Michael DuVally, spokesman in New York, declined to comment.
Other firms known to have structured credit divisions within their principal finance businesses, through which they invest in fixed-income securities and either repackage them or hold them on their balance sheet, include Deutsche Bank, which entered the space last November (DW, 11/24) and UBS.
Principal finance offers firms a means of competing with hedge funds as well as enabling them to keep key personnel in interesting jobs, noted one banker. He added that "everybody is looking to get into this space." The activity offers clients an alternative to other structured products, having a different time horizon and a more independent trading mandate, he said. Unlike a trading desk, the principal finance operation doesn't need to demonstrate profit on a daily basis, he explained.
Padovano moved out of his former role in January after Merrill restructured its credit division. said an official familiar with the matter. Since that time the firm had been looking to place Padovano into another senior role, he added. Luis Reyna, former head of global credit analytics, has also moved internally to work under Padovano. Reyna declined comment as well.
