Free content

Fukoku Mutual Life Insurance Co., with JPY4.732 trillion (USD40.2 billion) in assets, is considering beefing up its synthetic collateralized debt obligation investments for its USD5 billion fixed-income portfolio in the coming months. "We just got started," said Ichiro Yamada, manager of the international finance department in Tokyo, noting that the firm recently purchased a USD10 million tranche of a synthetic CDO.

ABN AMRO has lost Rob Hayward, senior foreign exchange strategist in London, in recent weeks. Alex Evans, spokesman for ABN in London did not return calls at press time. Hayward could not be reached.

Standard loan agreements need to adopt transferability mechanisms as part of their standard documentation in order to bring the market liquidity that is a prerequisite for shifting large quantities of credit risk, for example through credit derivatives. Charles Smithson, partner at Rutter Associates in New York, explained that at present standard loan documentation assumes loans to be non-transferable.

Lehman Brothers has lost Stefano Lonoce, equity derivatives marketer in Milan. Lonoce reported to Dave Bizer, European head of equity derivatives sales and research in London. Before transferring to Milan, Lonoce worked in London in the equity derivatives marketing group, according to an individual familiar with the situation. Jessica Shepherd-Smith, spokeswoman at Lehman in London, and Bizer, declined comment.

Henkel, a multi-national group of manufacturing companies that specializes in cosmetics, chemicals, hygiene and technology, has entered an interest rate swap to convert a recent fixed-rate EUR1 billion bond (USD1.17 billion) offering into a synthetic floating-rate liability. Sylvester Heyn, corporate risk manager in Düsseldorf, Germany, said the company decided to convert the offering into floating-rate debt to reduce risk because floating-rate liabilities are a better fit with its cash profile. He explained that he looks at the profile of all of Henkel's liabilities, including its pension fund liabilities, when determining whether to convert an offering into floating-rate debt.

Morgan Stanley has issued its first three single-tranche mezzanine notes referenced to Synthetic TRACERS, its U.S. 100-name credit-default swap index. Matthew Zola, managing director and co-head of structured credit products in New York, said the structures were traded as a means of promoting flow in the index. In a generally low spread, low interest rate environment, investors are looking for ways to hit their yield targets and relative to other instruments such as corporate bonds, structured mezzanine tranches look attractive, he noted.

Credit portfolio managers are increasingly executing risk management strategies which generate income as well as reduce risk. Robin Lenna, head of credit capital management at FleetBoston Financial in Boston, said risk managers are embracing a wider range of strategies, including capital arbitrage and exchanging risk with similar entities to diversify their portfolios (DW, 2/10).

One-month implied volatility on the Mexican peso/dollar cross leaped to 11.5% last Wednesday, a percentage-point jump on the previous day. The increase came as the Cete, Mexico's benchmark 28-day Treasury bill, fell to one of its lowest yeilds. This prompted many to pull money out of local fixed income and reinvest either in local equities or get out of the country altogether all of which puts pressure on the peso, noted the trader. As Mexico's currency dived through key technical levels the currency also saw profit taking which further encouraged investors to leave the market, he added.

Credit-default swap spreads on DaimlerChrysler blew out last week after news hit the market late Tuesday that the U.S. arm would suffer a second-quarter loss of USD1 billion. Although the Chrysler Group said it planned to cut a further USD1 billion of costs to allow it to report an operating profit for the year, bond investors were upset that this information was not disclosed before a USD2.5 billion bond issue was marketed, traders said. As a result, the bond deal was relaunched and is expected to price with a higher coupon.

* Merrill Lynch's Christopher Mehan, co-head of credit products and corporate risk management in New York, falsely raised attendees' hopes by promising to open his presentation with a joke. He later backed down, saying there was no upside. "If you tell a bad joke, you tell a bad joke [but] if you tell a good one, people remember that and not your presentation," he quipped.

The 10 U.S. banks that will be required to adopt the second Basel Capital Adequacy Accord need to focus more energy in developing their internal credit ratings systems. Zahra El-Mekkawy, v.p. at the Federal Reserve Bank of New York, said some key areas of firms' internal ratings systems need more work, despite the strong progress already made.

"Like all marriages, however, the trade suffers from the difficulty of finding a good partner."--Robin Lenna, head of credit capital management at FleetBoston Financial in Boston, commenting on the trials and tribulations of arranging a perfect risk swap. For complete story, click here.