Salomon Smith Barney has combined its U.S. high-yield and high-grade credit trading businesses in an attempt to better allocate its resources to "crossover" credits--a booming area of the market consisting of bonds that are bought and sold by both high-grade and high-yield accounts. "We don't worry about where the bond trades, just that we have the best traders trading it," says Jim Zelter, head of the firm's global high-yield business, explaining the rationale for the new structure. Though other large dealers, including Morgan Stanley (BW, 8/19/01) and Merrill Lynch (BW, 1/13/01) have united high-yield and high-grade research, and Goldman Sachs has united its capital markets units, Salomon is believed to be the first large dealer firm to fully combine high-yield and high-grade credit trading.
As a result of the reorganization, Brian Riano, head of U.S. high-grade trading, takes the new position of head of credit trading in New York, responsible for both high-grade and high-yield trading. John Eckerson, formerly a senior high-grade trader, becomes head of high-yield trading, replacing Jim Higgins, who moved to London several weeks ago (BW, 8/18). Eckerson will report to Riano, who will report jointly to Zelter and Geoff Coley, co-head of global credit. No one was laid off as a result of the changes, Zelter says.
Part of the rationale for the move may also have been to eliminate friction between high-yield and high-grade traders about who should trade the increasingly valuable crossover book, according to a senior buy-side official and a credit unit head at a rival. The unit head says his firm is still trying to sort out how to address the contentious issue of crossover credits. Though the crossover market used to be fairly small, it now includes several of the largest corporate bond issuers, such as Tyco International, and entire industries, such as utilities and airlines. The question of when a credit becomes crossover is subject to debate, but some market players argued that Ford Motor Co., the largest corporate bond issuer of all, joined the crossover market last week. Zelter says the move was not made to address any possible friction between traders.