Search results for

The London branch of the Korea Development Bank plans to hire a treasurer, who will explore using credit derivatives to buy protection and take exposure. David Afcroft, head of securities trading in London, said part of the new treasurer's responsibility will be to examine credit derivatives. "A new treasurer, with experience, would presumably look to take on exposure as he sees fit, not necessarily massive exposure, but [it] would increase our opportunities." The firm does not plan to make markets in credit derivatives from its London office. The firm's Seoul headquarters already uses credit derivatives.

Nomura Advisory Services Malaysia is considering structuring the first ringgit-denominated synthetic collateralized debt obligations in Malaysia, the first of which could hit the market next year. "This is something that we'd definitely like to develop," said Steve Clayton, managing director and head of debt capital markets and investment banking in Kuala Lumpur. The move follows the beginnings of a cash CDO market earlier this year.

Nordic Investment Bank, a multilateral financial lending institution, has entered a cross-currency interest rate swap to convert a NOK400 million (USD53.28 million) bond into a synthetic floating-rate obligation. Samu Slotte, senior funding officer in Helsinki, said the agency may enter similar swaps this calendar year since it has EUR1 billion in funding needs and may tap the capital markets. Slotte, however, said it has not yet been determined how much would be raised from the capital markets and how much would come from its cash reserves, which total EUR2.3 billion.

Credit-default swaps spreads on Saint-Gobain blew out last week as the company confirmed it is exposed to 5,000 asbestos claims per month, and in a reaction to the news, protection on building material companies Lafarge and Hanson also jumped. Traders said the spillover effect may be the tip of the iceberg as the market is nervous about exposure to asbestos law suits, particularly after ABB's recent announcement that it could face bankruptcy based on losses from asbestos claims in the U.S. "It is a big unknown and the market is questioning how [asbestos exposure] will affect companies in Europe," said one trader.

Standard & Poor's is reviewing its rating methodology for first-to-default baskets and may adopt a new system more in line with the other agencies. S&P currently uses a weakest-link approach to rating baskets and is examining changing this to reflect the diversity of portfolios, according to Nik Khakee, director in the structured finance group in New York. Within three weeks it will likely be decided whether, and how, to change its rating, he added.

The International Swaps and Derivatives Association has issued the minutes to Oct. 15's meeting, when the U.S. credit professionals rejected the European modified modified restructuring proposals.

"For AAA notes Moody's is the harshest, but for mezzanine classes S&P tends to be the harshest."--Yukio Egawa, director in the global securitization research group at Deutsche Securities in Tokyo, commenting on the rating agencies' different methodologies for rating CDO tranches. For complete story click here.

Size Of The Market

Taishin International Bank, with a market capitalization of over TWD30 billion (USD859 million), is gearing up to make its first investment in synthetic collateralized debt obligations. "This will allow us to diversify our portfolio," said Eric Chien, head of the treasury department in Taipei. The move follows the bank's merger with Dah An Commercial Bank earlier this year.

The cost of U.S. dollar/Japanese yen options jumped last week following the announcement of the Japanese government's banking and economic reform package. One-month implied volatility rose to stand at 9.75% Wednesday, up half a percent on the week before. The week saw uncertainty over what sort of package the Japanese government would offer, said one trader. The currency pair traded at JPY123 last Wednesday, strengthening from JPY125 the week before.

Scott Stone, portfolio manager at Kansas City Life Insurance Co., says he will rotate $45-67.5 million, or 2-3% of the firm's portfolio, into mortgage-backed securities and high-yield bonds. The firm's allocated cash reserve will be used to finance these purchases. There is no particular trigger for this move. Stone says that his low cost of funds is central to his decision to add MBS, but declined to elaborate further. The rationale for increasing the high-yield exposure lies in his desire for added yield. He will make the move by buying double-B secured bonds.