The International Commercial Bank of China, with assets totaling over TWD906 billion (USD26 billion), plans to invest in credit derivative products including synthetic collateralized debt obligations for the first time before year end. "There's a lot of ideas going around," said Angela Chen, manager of the treasury department in Taipei, adding that she has been shown several credit derivative instruments by the sell side.
The bank is looking at starting off with single-name and basket credit-linked notes as a way to enhance yield for its USD1 billion U.S. dollar-denominated investment portfolio, given the low interest rate environment. Chen continued that the bank is still in the "first step" of reviewing the products but noted that it will likely plunge in within three to six months. She added that once the bank has purchased structures such as basket notes, it will consider investing in synthetic CDOs. "Baskets are a good starting point before we look at CDOs," said Chen. ICBC will likely consider rated tranches of CDOs on global credits, which would provide diversity. She declined to comment on potential investment size. The bank also invests in structured notes, corporate bonds and convertible bonds, said Chen, declining to elaborate.
As for counterparties, ICBC is speaking with several international houses, said Chen, declining to single out specific firms. The bank will look at such factors as pricing and the structure of credit products when considering deals.
"It's a good sign but there's still a long way to go," said an official at ABN AMRO, noting that credit products are still in their infancy in Taiwan. He added, however, that he plans to contact the bank. In regards to synthetic CDOs, Fubon Securities recently became the first Taiwan-based organization to invest in the product (DW, 5/5).
