UBS is setting up a new fixed income business in its principal finance operation and has transferred Michael Mahaffy, head of equity risk management products, to launch the business. Mahaffy, who had presided over the firm's equity derivatives trading and sales, convertible bonds and structured equity businesses, did not respond to messages. Kris Kagel, spokesman in New York, confirmed that Mahaffy is setting up the new operation, but declined further comment on this point.
Rival bankers noted that principal finance is something of an amorphous concept that can take in everything from proprietary trading to making strategic investments in companies. UBS is widely credited with setting up the first structured credit principal finance business over a year ago, and this has sparked interest in what type of business Mahaffy is planning to build.Deutsche Bank, Merrill Lynch, Goldman Sachs and Banc of America Securities followed UBS' lead in setting up structured credit arms in principal finance.
One observer speculated that Mahaffy's equity background suggests he may enter capital structure arbitrage trades, which aim to exploit price discrepancies between debt and equity securities.
In his new role, Mahaffy reports to Ken Karl, global head of principal finance in New York.
Meanwhile Huw Jenkins, head of U.S. equities in New York, has absorbed Mahaffy's equity derivatives responsibilities, said Kagel. Neither Karl nor Jenkins returned calls.
