HSBC is preparing its first synthetic arbitrage collateralized debt obligation as part of the firm's plan to grow its ABS and CDO group. HSBC has already completed a cash arbitrage CDO, but the next deals could be synthetic if there is client demand. Rick Watson, head of the CDO group who recently joined from Bear Stearns, said the bank will also structure balance sheet CLOs for banks, which will be primarily synthetic, and cash CLOs backed by residential mortgages, consumer loans and mortgage warehousing facilities that will mainly involve a true sale.
Watson explained that HSBC will structure arbitrage CDOs referenced to various asset classes, such as high-yield bonds, emerging market debt, leveraged loans, asset-backed securities and investment-grade debt. These will be both cash and synthetic.
Watson's position is newly created and part of the bank's plan to grow the ABS and CDO group, Watson said. The market for securitization products is growing within the fixed-income arena in Europe, making now a good time to take advantage of HSBC's distribution base, he added. The group has four to five employees in London and is part of a 20-strong structured products team. He also noted he would be working with the CDO group in New York, which is headed by Rick Ziwot, head of credit derivatives.
Watson reports to Bahman Jahanshahi, head of structured capital markets. Previously Watson was working in the CDO group at Bear Stearns and reported to Andy Clapham, head of European principal and asset-backed finance. Clapham said the bank does not have specific plans to replace Watson at this point, but has an ongoing recruitment effort in its CDO group.
