Deutsche Bank and JPMorgan are making a push to sell credit-linked notes to European corporates and Merrill Lynch is preparing its first deals. JPMorgan executed its first deal four months ago and has seen corporate demand for these notes rise to 10% of its total CLN operation, said Carlos Fernandez-Aller, v.p. and head of corporate credit derivatives for southern Europe and emerging markets in London. Tony Main, v.p. in the global credit derivatives group at Merrill in London, said the firm has a handful of deals in the pipeline. Deutsche Bank has already executed several CLNs for corporates since it started offering the products three months ago and has further deals in the pipeline, according to Mark Stainton, director and head of exotic credit trading at Deutsche Bank in London.
Increased liquidity in short-dated credit-default swaps coupled with the demand from corporates to increase returns on their short-term cash holdings have helped to make the products possible, bankers said. This phenomenon is part of the ongoing disintegration of relationship banking where corporates are becoming less dependent on commercial banks for all their treasury functions. Wider credit spreads have added to the attractiveness of these instruments, according to the bankers.
In an example trade a corporate could earn Euribor minus 20-30bps on a deposit with a AA rated bank, whereas a CLN could offer a rate of approximately Euribor plus 40 basis points, structurers estimated.
