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Jim Dugan, portfolio manager at Cavanaugh Capital Management, is looking to rotate 12% of the firm's portfolio, or $78 million, out of corporates and into mortgage-backed securities. The move will be triggered once the 10-year Treasury yield backs up to 4%; the bond was yielding 3.67% last Tuesday. Dugan wants to see some of the pressure on prepayment risk diminish before purchasing MBS, which he says is likely to occur given the steep drop in Interest rates.

ABN AMRO has brought in Herman Fong, v.p. in equity derivatives at Indosuez W.I. Carr in Hong Kong, in a new position as a director of equity derivatives trading in Hong Kong. Ali Ahmed, head of equity derivatives trading at ABN in Hong Kong, said Fong's primary focus will be Korea as the bank is looking to build up its coverage. "It's going to be the most profitable market in Asia in terms of trading and marketing this year and next," he said. Ahmed joined from W.I. Carr last month to replace Frank McKirgan after he relocated to London (DW, 8/16). At W.I. Carr, Fong reported to Ali. "Better prospects," said Fong, on explaining why he made the move, declining to elaborate.

Ambac Assurance Corp. has suspended writing credit protection on pools of corporate obligations that include standard or modified restructuring language because it does not think its concerns over the definitions are being satisfactorily addressed. In an e-mail to the International Swaps and Derivatives Association's end user committee, Michael Schozer, managing director and head of structured finance and credit derivatives at Ambac in New York, said, "We have decided to suspend writing new business with the standard Restructuring language, even at the "super AAA" level."

Thank you for your report of the response of the banks and dealers to our proposed Restructuring language.

THE FOLLOWING MESSAGE IS FROM TRACY HAWKINS AND PASCALE VIALA:

Bank of America's Kenichi Tatsuzawa, head of global markets for Japan, and Koichi Kanaya, head of sales, both based in Tokyo, have resigned, according to Kanaya. The firm has experienced a string of difficulties in Japan. Earlier this year William Fall, global head of structured products in London and the regional head of the global markets group, told DW, "There was a false start," in establishing the credit group. BofA also closed down its equity derivatives business in Japan and Korea (DW, 3/8).

A series of sham electricity option trades Merrill Lynch entered with Enron in late 1999 that allowed the latter to book a fictitious USD60 million profit have come home to roost, reportedly resulting in the termination two weeks ago of Dan Gordon, Allegheny Energy's president of energy trading, according to an official familiar with the situation at Allegheny. The deal, which was first reported by The New York Times last month, apparently infuriated Allegheny's management because it raised awkward questions over the valuation of two acquisitions: the three Midwest peakers Allegheny bought from Enron in November 2000 and Merrill's energy trading team it purchased in January last year. Gordon, who was terminated as president of Allegheny's energy trading group on Sept. 5, was previously head of Merrill's energy trading team and took the Enron trade to senior Merrill management to get it signed off.

Below is a summary of the most important statistics from the British Bankers' Association's 2001/2002 survey of the global credit derivatives market.

Teck Cominco, a Canadian mining and refining concern with USD1 billion in outstanding debt, is considering entering an interest rate swap to convert part or all of a fixed-rate bond it recently sold into a synthetic floating-rate liability. Larry Mackwood, treasurer in Vancouver, British Columbia, said he is monitoring the swaps market and would pull the trigger on a fixed-to-floating swap referenced to a recent USD200 million bond offering if pricing improves. "We want to do it as cheap as possible," he said, noting the company has used interest rate swaps in the past but is not an active user.

Crédit Agricole Indosuez has restructured its Korean fixed income and debt capital markets operation by bringing aboard Gin Lee, head of foreign exchange and short-term derivatives marketing at BNP Paribas in Seoul, in a new role as head of sales and deputy treasurer. The move adds a layer of management, so that the debt capital markets origination and fixed-income and derivative sales report to Lee. Previously the teams reported directly to Y.J. Lee, treasurer in Seoul. Gin Lee reports to Lee, who was on vacation and could not be reached.

ISDA's collateral committee, which deals with issues surrounding the credit support annex for derivatives transactions, is focusing on three areas: establishing definitions for debt, cash and equity collateral; developing methodologies for establishing and changing haircuts; and creating a simple way for firms to amend the credit support annex. Robert McWilliam, head of global collateral management at ABN AMRO in London and chairman of the committee, said the bulk of the work would be done this fall, ahead of its April 2003 deadline for the asset definitions.

Congress has eliminated several sections of a bill that could have dealt a mortal blow to the synthetic and cash securitization market, according to DW sister magazine Real Estate Finance & Investment. The clauses were part of the pending Employee Abuse Prevention Act of 2002 and would have allowed bankruptcy trustees to seek a more senior position than securitization investors in the event of a bankruptcy. This could have resulted in investors suffering delays in receiving recovery values or even losing their whole investment because the bankruptcy trustees could have had priority over the company's securitized assets, according to Lorraine McGowen, partner in the bankruptcy and debt restructuring group at Orrick, Herrington & Sutcliffe in New York. Steven Weise, attorney in the Los Angeles offices of Heller Ehrman White & McAuliffe, agreed, "Some of the provisions could have had a severe and dramatic effect on the structured finance markets."