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General Motors Acceptance Corp. has issued what is believed to the first Dutch residential-mortgage backed securities deal, in which the interest-rate risk is hedged. In this EUR400 million (USD430.74 million) securitization the special purpose vehicle has entered an interest-rate swap with Citigroup, in which it pays the fixed rate it gets from the portfolio of mortgages and receives three-month Euribor, the rate it needs to pay on the notes. In previous transactions the issuer has had to hold the risk of interest rates falling and homeowners refinancing their mortgages, which is also known as prepayment risk.

Goldman Sachs has reconfigured its London-based collateralized debt obligation group. The firm has split its synthetic and cash CDO teams and brought the cash business into the same group with principal finance and securitization, according to an industry official. The synthetic CDO group is now a stand-alone entity.

Napier Scott has published a remuneration survey of credit derivatives traders and structurers. Managing directors of synthetic structuring in Asia are the biggest earners, netting around GBP1.35 million (USD2.13 million), while their poorer New York colleagues get GBP1.1 million. See below for the full matrix from associate upwards.

JPMorgan has named managing directors Andy Brindle, global head of credit derivatives, and Bertrand Des Pallieres, head of interest rate derivatives, as global co-heads of structured credit, in an expansion of their existing roles. Both will replace Romita Shetty who held the position until December and is still at the firm evaluating whether she will accept another role. Brindle declined to comment. Des Pallieres did not return calls. Shetty could not be reached for comment. Michael Dorfsman, a spokesman, confirmed the move but declined to elaborate.

The last 30 years has seen the successful development of mathematical models for financial equity investing. Indeed the Black-Scholes-Merton theory, with its consequent formulas, has changed the way business worldwide handles questions of risk. Nevertheless, as currently used, the models still represent a crude approximation of what is actually going on, and improvements of the models can lead to an edge for an investor. This Learning Curve discusses the overlooked issue of liquidity risk. Economists classify risk into five rubrics:

Kevin Kelly, managing director in credit derivatives sales and Steven Reddy, executive director in insurance derivatives, have left Morgan Stanley in New York. The staffers were likely let go as part of the firm's effort to reduce headcount, according to officials familiar with the firm. Mark Lake, spokesman in New York, declined comment. Neither Kelly nor Reddy could be reached.

RCI Banque, Renault's financing subsidiary, has entered an interest rate swap on a recent EUR400 million (USD429.42 million) offering to convert it to a synthetic floating-rate liability. Jean-Marc Saugier, group treasurer in Paris, explained that the bond has a 4.2% coupon, but after the first two years and three months, the investor is paid the harmonized index for consumer prices (HICP) euro-zone inflation level--excluding tobacco--plus 200 basis points if Euribor is above 4 1/2%. In the swap, RCI pays Euribor plus a spread and receives the coupon on the bond. The swap has the same maturity as the underlying offering.

A recent decision by a U.S. district court over credit derivatives transactions raises the possibility that the duty of a broker-dealer to its customer or counterpart may be expanded based on the market professional's "unique or special expertise"--without regard to the other party's level of sophistication. This article examines how the decision may affect the obligations of a broker-dealer or other market professional to its customer or counterpart beyond, and notwithstanding, the documentation intended to govern their relationship.

Credit derivatives professionals expect new issues of synthetic collateralized debt obligations referenced to asset-backed securities to skyrocket this year with several firms, including BNP Paribas and Banc of America Securities planning their first deals in the U.S. Yuri Yoshizawa, v.p. and senior credit officer at Moody's Investors Service in New York, said it is getting enquiries from almost every CDO house as credit arbitrage opportunities in the investment-grade arena shrink. Last year Moody's rated three synthetic ABS deals compared with 45 cash deals, and based on enquiries seen so far this year Yoshizawa predicts that proportion will dramatically increase. One official estimated about a quarter of ABS CDOs this year will be synthetic. Robert Smith, v.p. at ACE Guaranty in New York, said it would consider participating in such deals, noting that as a new type of risk ABS offers diversification.

"We are very interested in learning about [credit derivatives] in more detail and finding out what effect they can have on our funding costs."--Daniel Walk, a member of the finance strategy team at ThyssenKrupp in Dusseldorf, commenting on the company's plans to look at ways of reducing its funding costs. For complete story, click here.

ThyssenKrupp, a German industrial conglomerate with EUR38 billion (USD40.97 billion) in sales, is considering using credit derivatives to reduce its funding costs after a recent downgrade to junk status. "We are very interested in learning about [credit derivatives] in more detail and finding out what effect they can have on our funding costs," said Daniel Walk, a member of the finance strategy team in Dusseldorf. Standard & Poor's downgraded ThyssenKrupp two notches to BB plus on Feb. 21.