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Principal-protected securities can be attractive investments in the current market environment where investors are concerned about the loss of principal in higher-yielding investments, yet frustrated at the low returns Treasuries or other high-quality instruments offer. Protected securities assure the return of principal at maturity without limiting the upside potential of the investment. As a result, they allow investors to participate in the expected yield of hedge funds with minimal risk of losing principal.

American International Group is merging AIG Financial Products and AIG Trading, two overlapping businesses that have often been in direct competition. It could not be determined by press time who will head up the merged entity. Calls to AIG were referred to Andy Kaplan, general counsel, who did not return calls.

Oesterreichische Kontrollbank, the Austrian export credit agency, has entered an interest rate swap on a USD1 billion bond offering to convert it into a floating-rate liability. Ebner Anton, deputy head of treasury at the agency in Strauchgasse, said its policy is to convert fixed-rate debt into floating-rate. The firm chose to keep the proceeds of the offering in U.S. dollars, however, because it has dollar assets, Anton added. He noted that it is typical for the export agency to issue bonds in greenbacks a few times per year. The tenure of the swap matches the five-year maturity of the bond.

Five-year credit protection on Altria Group, which owns Philip Morris USA, tightened to 210 basis points last Wednesday, having traded wider than 300bps the week before, after a Florida appeals court revoked a USD145 billion verdict against tobacco companies, which includes Altria. Default swaps on the name widened by 15bps last Wednesday, standing at 225bps, as a result of technical factors, said a New York-based trader. No single strategy dominated, but the name is widely held by hedge funds, insurers and banks, said the trader.

Bear Stearns has added Alexandre Winkler, v.p. in fixed income and credit sales at Société Générale in London, as an associate director in fixed income derivatives marketing to further develop the group's coverage of German and Austrian institutions. Winkler reports to Morad Mahlouji, senior managing director and head of fixed income derivatives marketing in London. Winkler declined comment.

Investors, such as structured credit hedge funds, are starting to snap up mezzanine tranches of synthetic CDOs, which had recently been unfashionable, because of the tightening spreads. Eric Oberg, head of credit derivatives sales and marketing at Goldman Sachs in New York, said the firm is seeing increased interest from investors, including hedge funds that are new entrants to structured credit, in buying mezzanine tranches in both the primary and secondary markets.

Next, a U.K. clothing retailer, has entered its first interest rate swap to convert a portion of a recent bond offering into a synthetic floating-rate liability. Andrew Jones, treasurer in Leicester, U.K., said the company executed the swap in order to match its asset profile. He noted that the U.K. retailer does not have a specific floating-to-fixed ratio of debt that it targets, but is conscious of the balance. Jones declined to disclose the percentage of the GBP300 million (USD491.91 million) offering which was converted into floating-rate debt.

Recent innovations in credit derivatives, such as collateralized debt obligations referenced to asset-backed securities, are getting too close for comfort to insurance contracts, according to lawyers. If regulators deem the contracts to be insurance products they could fine investors and structures and possibly even revoke banking licenses, according to Patrick Clancy, counsel at Shearman & Sterling in London. Lawyers predicted that regulators will only start dishing out major penalties if there is a continuing breach of the rules. Officials at the Financial Services Authority declined comment.

Credit Suisse First Boston has created a global structuring group that amalgamates the firm's emerging markets, insurance and tax structuring units. Jeremy Bennett, head of emerging market credit structuring, will head the new group, dubbed Credit and Insurance Structuring (CIS). Beyond offering collateralized debt obligations, the firm has not yet fully developed its credit derivatives structuring abilities for the group of 20 most developed countries, according to Bennett. The reorganization will allow CSFB to expand its structuring presence in these countries as well as continue to grow its structured business in emerging markets. Structures developed by CIS will address risk management and capital raising issues for clients, he noted.

Deutsche Bank has hired Steve Seman, director in equity derivatives trading at UBS Warburg, as a single stock trader in its equity derivatives group. Seman will report to Noreddine Sebti, managing director and European head of trading for global equity derivatives in London. Sebti declined comment.

Deutsche Bank has developed what is thought to be the first capital guaranteed bond that provides investors with a return from a quantitative fx trading strategy. Previous products have given investors currency exposure via fx options, but this instrument is non-directional. "This is an interesting product," commented an official at JPMorgan. JPMorgan has structured capital guaranteed products with options on macro hedge funds or relative value funds that have an fx component, but the official said he is unaware of any instrument similar to the Deutsche Bank note.

Deutsche Bank has hired Emmanuel Petrakis, credit professional at Morgan Stanley in New York, as a director in relative-value credit sales, according to Harriet Benson, spokeswoman at Deutsche Bank in New York. An official said Petrakis joins in a new position to expand the coverage of its relative value group. Neither Petrakis nor Erik Falk, the head of relative value group and co-head of securitized product sales, to whom Petrakis reports, returned calls.