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Financial institutions in the U.S. are set to pull in billions of dollars of business providing capital guaranteed funds backed by over-the-counter swaps with insurance companies. Both Deutsche Bank and Salomon Smith Barney are working on products that will use derivatives with insurance companies to provide guarantees, according to officials at both firms. Jean-Marie Barreau, head of fund derivatives at Deutsche Bank in London, said the market could grow from around zero now to USD5 billion in the first year and USD10-15 billion the following year.

ING Financial Markets is planning to put itself back on the equity derivatives map in Asia by re-establishing a desk in Hong Kong in the coming months, according to market officials. "They're coming back into the market," noted one official, adding that ING had pulled the plug on its equity operation during the Asian financial crisis.

Algometrics, a London-based hedge fund, is entering the credit default swaps market for its USD33 million proprietary equity fund, Algometrics Cayman. Stephen Smith, managing director, said Algometrics is also entering the market on behalf of its investors. The firm trades for approximately three outside funds. Growing liquidity in the credit-default swaps market is spurring Smith to use the over-the-counter credit instruments. Currently, the fund only uses exchange-traded equity derivatives and over-the-counter equity options. "If you're trading the stock, credit derivatives are the way into the next tier of equity risk," Smith said. Algometrics has done some experimental credit-default swaps trading and is building a system to use for trading.

KBC Asset Management has entered an equity swap to guarantee a new product, and it plans to enter a similar swap this week. The three-and-a-half-year maturity fund, dubbed KBC EquiPlus, is split into three equal periods. Investors receive a 0.5% coupon for each of the 20 stocks that end the period above the initial level of the fund, said Lode Roose, product development manager in Brussels.

"The U.S. market is way behind Europe [for structured equity products], but it is catching up quickly."--Jean-Marie Barreau, head of fund derivatives at Deutsche Bank in London, commenting on the development of guaranteed funds in the U.S. For complete story, click here.

Merrill Lynch has hired two fixed-income marketing specialists from Morgan Stanley for its structured products and credit derivatives, according to the new recruits. Masahiro Sekino and Chikara Tanaka, of the fixed-income sales group at Morgan Stanley in Tokyo, joined three weeks ago. Sekino has joined as a managing director but said his exact role and reporting line are still being determined, declining to elaborate. Tanaka said he has joined as v.p. in the corporate coverage group specializing it marketing structured products and credit derivatives as well as interest-rate and foreign exchange derivatives to Japanese corporates.

SBI China Provident Capital Management, a newly established pan-Asian hedge fund with some USD10 million under management in Hong Kong, is looking to purchase and sell credit derivatives for its multi-strategy portfolio. "It's part of our mandate," said Adrian Churn, cio in Hong Kong, adding, credit derivatives are part of the fund's strategy.

Insurance transformer transactions are structured to transform a potential liability under a credit-default swap into an insurable loss falling within the scope of an insurer's permitted activities. As such, they are amongst a number of products used to transfer risk from the banking sector to the insurance markets (and to a lesser extent vice versa), which have been the subject of a discussion paper, Cross sector risk transfers, published this month by the U.K. Financial Services Authority. This article briefly considers some of the legal issues associated with this type of transaction.

Bear Stearns has hired Patrick Hagan, head of quantitative derivatives research at Nomura Securities in New York, as head of fixed-income research, according to a firm official. Hagan will oversee the pricing systems for fixed-income derivatives in New York. He is joining a team of around four interest-rate derivatives researchers.

Credit-default swap spreads on Deutsche Telekom tightened last week for five-year protection because of rumors that pricing on the telecom operator's approximate USD5 billion deal was going well. Swaps spreads tightened to 228 basis points/233bps from 230bps/240bps on Tuesday, in from 245bps/250bps the previous week, traders said. Swap spreads were in line with price talk on the bonds--rumored to be at 230bps over LIBOR.

RBC Capital Markets has reportedly taken a hit on a credit-default swap position on WorldCom and has let go Simon Howard-Glossop, head of credit trading in New York. Paul Wilson, a spokesman in Toronto, confirmed that Howard-Glossop has left the firm. He added that RBC only comments on material losses, declining further comment. A trader on the credit desk in New York and Walter Gontarek, head of credit derivatives in London, declined comment.

The Royal Bank of Scotland, the fifth largest bank in the world by market capitalization, is looking to set up a credit derivatives operation in Asia in the coming months on the back of building up its fixed income and currency derivatives desk in Tokyo, according to Pierre Ferland, branch manager and treasurer in Tokyo. "RBS has a tremendous aspiration to be a global wholesale leader," said Ferland. He continued that the firm is looking to set up a credit derivatives structuring and trading operation in Asia, which will be headed out of Tokyo. "It's the only structured investment product that's missing," said Ferland, commenting on the bank's interest in credit. RBS will look to hire structurers and traders for the effort, though he declined to comment on the intended size of the desk. "We're currently looking at potential candidates," he said.