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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.

Workout and restructuring bankers, along with a few distressed investors and lawyers, found their inner child last week at Institutional Investors Seminars Turnaround Management & Corporate Restructuring Summit at the W New York. A fair few were caught playing with one of the handouts--magna-doodles from Sherwood Partners--during a session.

Thomas O'Connor, portfolio manager at the Montgomery group of Wells Capital Management, says he is considering shifting 10-15%, or approximately $57-86 million of the firm's $575 million short-term fund, out of mortgage-backed securities into agencies. A trigger for the move would be if the Federal Reserve eases to counter the economic slowdown or if Treasuries rally under a war with Iraq, he says. In those cases, lower interest rates would create a high pick-up in prepayments, leading mortgage products to underperform Treasuries, he says. He declined to define a level at which interest rates would be low enough to trigger such move. Another reason for the rotation is that the firm is overweight in mortgage products and has no allocation to agencies.

Edinburgh-based Standard Life Investments is looking for carry instead of making yield bets on the view that the European bond markets will continue to be volatile over the coming months. Gregor MacIntosh, investment director, responsible for E1 billion in European government debt, says he is certain an economic recovery is coming. However, he says the yield curve will not change shape dramatically until there is some sentiment that there is a floor for interest rates--at which point he may reconfigure the portfolio.