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Bill Levy, managing director and head of hedge fund sales for the equity derivatives group at Morgan Stanley, has jumped ship to join Lehman Brothers, according to officials at both firms. The move is seen as a boost to Lehman's flow derivatives business and elevates the firm's presence in the hedge fund market, according to two market officials. David Gittings, head of the global equity derivatives marketing group at Lehman, will now co-head the group with Levy. Both co-heads report to John Wickham, global head of equity sales at Lehman. Levy could not be reached and Gittings and Wickham did not return calls. Bill Ahearn, a Lehman spokesman, also did not return calls.

Salomon Smith Barney has hired Steve Segretta, a CDO structurer atCIBC World Markets in New York, as director in the newly merged credit derivatives structuring and trading team and plans to hire two or three additional synthetic collateralized debt obligation structurers for its New York headquarters.

POSCO, a Seoul-based steel manufacturer with over KRW8 trillion in assets, entered a USD174 million foreign exchange swap for its USD2.1 billion debt portfolio two weeks ago. In the swap, which matures in July 2004, the firm pays yen and receives dollars at a JPY131.42 exchange rate. Ro Young Il of the international finance department in Seoul, said POSCO entered the swap to reduce the proportion of its debt in dollars because of the weak yen and low interest-rates.

Robert Le Blanc, head of global portfolio management at Dresdner Kleinwort Wasserstein, has joined Barclays Capital as a managing director and global head of risk management. He reports to Paul Idzik, coo, and Robert Nimmo, director of risk. Le Blanc will also be a member of the management committee.

Credit-default swap spreads on Pechiney widened 10 basis points to 120bps last week as convertible arbitrage hedge funds bought protection to strip out the credit risk on the French steel company's convertible bond offering. Pechiney issued a EUR450 million (USD397 million) convertible bond with an embedded equity option priced at 26%. Andy Preston, fund manager at KBC Alternative Investment Management, said he bought the bond and protection to isolate the equity risk. Implied volatility on Pechiney's common stock has not fallen below 27% in the past four years, with an average implied vol of 38-39% over that same time frame, said Preston. Derek Watson, advisor to the convertible arbitrage fund at Decillion Investment Management in Nyon, Switzerland, said he also plans to buy the bond and would isolate the equity option. However, he said it will do this via an asset swap.

In a move to re-establish its weather derivatives trading business Swiss Re Financial Products has hired Mark Tawney, former head of the weather derivatives desk at Enron in Houston, and a team of four other weather traders from the bankrupt power company, according to a Swiss Re official.

The ballooning spread between implied volatility and historical vol on some convertible issues could presage a meltdown in the convertible bond market or break the back of a number of convertible arb hedge funds, according to two European fund managers. Paul Besson, fund manager of the EUR220 million convertible arb fund at CCR Gestion in Paris, attributes the widening vol spread to the sharp rise in the number of convertible arb funds. These funds, he said, have bid up convertible prices to vertiginous levels. "It's like walking on thin ice," he said.

UBS Warburg has started pitching its fourth USD1 billion synthetic collateralized debt obligation dubbed SALS, according to a market official. The firm's last SALS deal hit the market at the end of last year. The static CDO is referenced to a USD1 billion pool of 100 investment-grade bonds diversified among industries, including autos, chemicals, utilities and telecom companies. The deal, which has a five-year maturity, is scheduled to be rated in New York within the next two weeks and will come to market in the next couple of months.

TD Securities has hired Hardy Hodges, head of the equity derivatives group at Wells Fargo in San Francisco, as a director in its credit derivatives structuring group in New York, according to Phil Chiaramonte, managing director of U.S. credit derivatives structuring in New York. "He is a top-notch structurer," Chiaramonte said. Bringing Hodges on board to fill the new position is part of the firm's plan to expand its credit derivatives group in the U.S. (DW, 11/25).

Costco Wholesale has entered an interest-rate swap following its recent USD300 million five-year bond offering to bring its floating-rate debt closer to its target of 40%. Before implementing the swap, Costco had approximately 78% in fixed-rate debt and 22% in floating-rate; after the swap, its floating-rate debt totals 36%. Hal Kaplan, treasurer, added that a portion of the proceeds of the bond offering will be kept in short-term investments--earning a floating rate of interest--and the swap will act as a hedge for that portfolio.

Nelson Capital Management will invest in Treasury Inflation Protected Securities (TIPS), lower rated investment-grade corporates and step-up agency bonds, on the view that the economy is rebounding and inflation will increase, says Melissa Parker, portfolio manager. The trade is set to begin this week and the overall asset allocation will remain unchanged as all purchases will be financed by sales of assets, she adds.