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Fortis Bank Hong Kong is reorganizing its derivatives effort following the resignation of Tony Au, head of capital markets in Hong Kong, two weeks ago. Philippe Dirckx, head of interest-rate derivatives in Hong Kong, has been promoted to head of fixed income and has assumed Au's responsibilities. "We're in the middle of a restructuring phase but next year our focus will be on credit derivatives products," said Dirckx.

One-month cable implied volatility rose and risk reversals moved further in favor of sterling puts last week as the pound weakened against the dollar after reports surfaced of a rift between the U.K. prime minister and chancellor. One-month implied volatility ticked higher to 8.6% on Tuesday, up from around 8% last week. And one-month 25-delta risk reversals also moved further in favor of dollar calls/sterling puts, rising to 0.4 vol by Tuesday in favor of sterling puts from 0.1 vol the previous week. Traders reported some investors were buying out-of-the money sterling calls with strikes in the GBP1.45-1.46 area as risk reversals cheapened the trade. Spot sank as low as GBP1.4090 last week, its lowest since the U.K. election in June, as a rift between Prime Minister Tony Blair and Chancellor Gordon Brown over the U.K. entering the euro appeared to widen over the weekend.

China International Marine Containers (Group), one of the world's largest manufacturers of marine containers with over USD795 million in assets, is planning to enter an interest-rate swap on the back of a syndicated loan it is likely to take out within six months. The manufacturer is currently in talks with several firms about a U.S. dollar-denominated loan, likely a LIBOR-based facility for approximately USD20 million, according to Tony Yao, assistant manager of the finance department in Shenzhen. "We're now preparing for a bidder's meeting," said Yao, noting that an interest-rate swap would also be discussed.

Convertible bond and equity issuance by European telecoms companies, France Telecom and Royal Dutch KPN, moved credit-default swap spreads in opposite directions last week. Convertible arbitrage funds snapped up France Telecom's EUR3 billion (USD2.64 billion) convertible offering and also bought credit protection to hedge the credit risk and isolate the equity component. This made spreads widen to 160-180 basis points Wednesday from 125-135bps Tuesday. Andy Preston, fund manager at KBC Alternative Investment Management in London, said it bought both the convert and credit protection because the embedded equity option in the convert is priced in the mid-30s vol whereas it is trading at around 50 vol in the equity derivatives market.

Energy companies unwound weather protection against a cold winter last week after an unexpectedly warm November. Enron and Element Re were seen to be two of the most active players in rehedging December through March exposure.

Fitch plans to hire six or seven collateralized debt obligation professionals for its London-based CDO rating team because of the increase in the number of deals coming to the market. Mitchell Lench, senior director in London, said it has about 15 CDOs in the pipeline this month in comparison to five or six this time last year, approximately one-third of these are synthetic or balance sheet transactions.

Pfaeffikon, Switzerland-based fund manager RMF Capital Markets has boosted its sales team to 12 from three over the last month and plans to hire three more sales professionals in the coming months. The move is part of the fund manager's effort to double its sales of guaranteed funds of hedge funds next year to EUR1 billion (USD884 million), according to Reto Ammann, co-head of capital markets. The expansion is possible because of the growth in demand for uncorrelated investments.

Gartmore Investment Management's recently launched long/short hedge fund, named Avior, may invest in over-the-counter equity derivatives. The fund was launched at the start of the month and as of last week had assets of GBP85 million (USD120 million). An official at the fund manager in London said it currently invests only in cash instruments and contracts for differences, but could use equity options. The investment universe for the fund is the FTSE350 and it invests only in U.K. equities and related synthetics.

Fortis Bank has structured a two-year reverse convertible on shares of Dutch banking giant ABN AMRO, because ABN's shares are trading near their 52-week low and because the high implied volatility on options on ABN facilitates structuring a guaranteed coupon of 11.25%. Koen Zoutenbier, senior account manager on the derivatives and structured products desk in Amsterdam, said the bank began pitching the note to investors last week and is aiming to sell a notional value of EUR15 million (USD13 million) of the product.

Gen Re Securities has named Spencer Kelly, head of structured products in Gen Re's New York office, as head of its newly created structured finance group in London. The new group will offer structured life insurance products, according to Kevin Lecocq, managing director and global head of marketing and structuring in London. The new department was set up as part of the ongoing expansion of the firm's structured products group in London (DW, 1/14).

Hartford Investment Management, a Hartford, Conn.-based money manager with USD171 billion in assets, is in discussions with major investment firms about using credit derivatives for the first time. Bill Meaney, portfolio manager, said it would buy and sell credit-default swaps to hedge its credit portfolio and to take positions. The firm is planning to pull the trigger on its first trade by the second quarter. Meaney said HIMCO recently started examining entering the credit derivatives market after recognizing the dramatic growth in volume.

The generation of large, positive semi-definite covariance matrices that properly reflect market conditions has been a challenge for finance practitioners for several years. Since the 1996 amendment to the 1988 Basel accord, where the principals of internal models for the calculation of market-risk capital were outlined, it has been a major problem to generate the covariance matrices that are necessary to calculate firm-wide Value at Risk estimates. In very large portfolios a risk factor model may be employed, but it is still necessary to have a covariance matrix for all the risk factors of the portfolio.