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Fund managers in Australia are snapping up credit-linked notes, spurring a three-fold increase in default swap volumes since the start of the year, reversing last year's market contraction. Gary Vassallo, head of derivatives at Macquarie Bank in Sydney, estimated his bank's CLN volumes have doubled. An Australian Financial Markets Association survey in October showed Aussie credit derivatives volumes had bucked a global trend and fallen by around 20% to AUD22 billion (USD13.3 billion) a year (DW, 10/28).

European structured credit derivatives professionals at Merrill Lynch, ABN AMRO, UBS Warburg and Citigroup plan to market their wares to retail investors for the first time. "Within 12 months, this will be a big market," according to Stefan Armbruster, head of equity structured products for Germany and Austria at ABN AMRO in Frankfurt. Retail investors have traditionally bought structured equity products, but with the equity markets tanking for three straight years, firms are starting to pitch products that offer investors high coupon payments and are turning to credit derivatives.

The Financial Accounting Standards Board is going to change the definition of what constitutes a derivative to prevent corporates putting funding gains in the operating section of their balance sheet. The change, which is part of an amendment due out later this month, will separate the funding element of derivatives, according to FASB official, who declined further comment.

Deutsche Bank has hired Brett Golledge, head of trading for European corporates and financials at Commerzbank Securities in London. Golledge will join the integrated credit trading (ICT) desk when he starts in the coming months, and will report to Antonio Di Flumeri, European head of ICT for non-emerging markets in London. Di Flumeri declined comment.

Andrew Feldstein, former managing director and co-head of North American structured products and derivatives marketing at JPMorgan in New York, is readying the launch of a credit hedge fund in June. The fund, which is yet to be named, reportedly will launch with assets of USD50 million and is predicted to grow to USD250 million by year-end. It will trade over-the-counter credit derivatives and adopt several credit arbitrage strategies, as well as invest in structured credit products. Feldstein confirmed his plans to launch a fund, but declined further comment.

Five-year credit-default protection on Ford Motor Credit tightened to 380 basis points last Wednesday from 460bps the previous week. The move came as a reaction to stronger-than-expected profits for the first quarter, said a New York-based trader. Protection on almost all autos moved in on the back of Ford, with a notable exception being protection on General Motors Acceptance Corp., which blew out Tuesday as the corporate warned it might not meet its earnings targets. Five-year protection on GMAC traded at 250bps Wednesday, out from 230bps two days earlier, said the trader.

Financial Security Assurance has started to review synthetic collateralized debt obligations again with an eye to reentering the guarantee market. Betsy Castenir, spokeswoman in New York, said the FSA is pursuing new business in the CDO market selectively, but declined further comment. The monoline pulled out of writing guarantees on CDOs last year, after sustaining losses, said market officials.

Norddeutsche Landesbank, a regional bank for the German states of Lower Saxony, Saxony-Anhalt and Mecklenburg-Western Pomerania, has entered an interest rate swap on a recent EUR1 billion (USD1.07 billion) bond offering to convert it into a floating-rate liability. Thomas Hofermann, syndicate manager at the bank in Hanover, said it entered the swap because it did not want to carry the interest rate risk for the 10-year maturity for the bond. The bank does not convert all fixed rate issues.

"Within 12 months, this will be a big market."--Stefan Armbruster, head of equity structured products for Germany and Austria at ABN AMRO in Frankfurt, commenting on the future of the retail market for structured credit instruments. For complete story, click here.

Goldman Sachs has reportedly lost USD5-7 million on a collateralized loan to an individual at a Taiwanese corporate after shares it held to back the transaction plummeted. The investment bank loaned an undisclosed amount to a senior official at Chou Chin Industrial through its private bank and accepted shares as collateral, according to a Goldman official. The shares plummeted from a high of NTD30.90 (USD0.89) on March 5 to NTD3.74 Wednesday after Kuo Pao-fu, chairman of Chou Chin, admitted last month to using company funds to drive up the stock price. Edward Naylor, a spokesman at Goldman in Hong Kong, declined comment.

HSBC, which has the largest dealing room in Hong Kong, moved around 50 of its 300-plus treasury and capital markets staff to a makeshift parallel trading desk Monday to ensure the firm can keep an operation running if the SARS virus infects the main trading floor. "We've put them on a separate floor," said Pierre Goad, spokesman. "We're also looking at further contingency plans, such as using locations in other countries," he added.

Lehman Brothers has hired Craig McCauley, head of global fixed income at BT Funds Management in Sydney, as head of emerging markets bond and currency sales in London. McCauley is taking a new position that has been added as part of the firm's increasing focus on marketing emerging market debt and currency products. He said he will be marketing both cash and derivative credit, fixed-income and currency instruments.