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U.K. Bank Mulls Credit Market-Making Foray

HBOS Group, the U.K. retail banking giant formed by the merger of Halifax and Bank of Scotland, is considering making the jump to becoming a credit market maker from an end user, with USD20 billion in credit investments. Officials from the two fractions in London said the new entity is contemplating starting a credit trading desk under the HBOS banner that may boost its credit portfolio by USD5 billion. The firm currently invests in cash and synthetic products, including synthetic collateralized debt obligations and mortgage-backed securities.

Tony Clark, an investment manager at Halifax in London, said the bank is "contemplating an expansion of credit trading; we have made money on the investment side and we think there are sell-side opportunities." He referred further queries to Cliff Pattenden, head of the credit trading team at Halifax in London, who did not return calls.

Credit derivatives pros said they were not surprised by the initiative, though they were skeptical that HBOS will be able to make major inroads into an already competitive market. "I can't see them being a liquidity provider, but by the same token people would have no trouble buying protection from them because they are highly rated," said a trader.

As a market maker, Clark said HBOS' current eight-person team could grow its credit book by USD5 billion to warehouse additional credit risk. However, he said any expansion in size and shift toward the sell side is in the nascent stage and will not occur until after the two banks have fully merged, which is expected to be in the first quarter.


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