Securitization People and Markets

The Federal Reserve is getting industry requests to nail down a specific point in time--preferably soon--when it will reconsider its merchant banking capital rule. Under the rule banks would have to hold capital on a sliding scale linked to the amount of its equity investments. On April 16 the Securities Industry Association "strongly urged the agencies to set a specific date by which they will re-examine the need for these external capital charges." SIA, which has a commercial bank as well as Wall Street members, would prefer that bank internal models determine how much capital should be allocated to cover merchant banking risks.

A rally in the wireline telecom sector? Few players think it will happen in the short term. Last week's Chapter 11 filing by Winstar Communications was the latest blow to the sector and is seen by junk market players as the reason behind the sharp sell-off in wireline telecom bonds. Moreover, Winstar's burgeoning legal battle with Lucent Technologies is being seen as an indication of a deepening credit crunch in the beleaguered sector. Several sell-side analysts argue that Winstar and other wireline companies have grim operating prospects going forward given the intense cash needs of building continent wide or even global networks. They also note that investors are disenchanted with the sector as a whole as evidenced by the inability of Lucent and TeleCorp PCS to move $425 million in vendor financing debt (in spite of what many saw as an attractive 17% yield). A Lucent spokesperson says the company plans to re-offer the notes in the future, depending on market conditions (see story, page 4).

Lucent Technologies and TeleCorp PCS are planning to re-offer $425 million in vendor financing paper and are considering putting together a second roadshow to market the deal, according to BW sister publication Telecom Financing Week. In March, TeleCorp, the largest AT&T affiliate, planned to raise some $425 million via a private sale of the vendor paper in the form of zero-coupon, 10-year notes to Lucent, which then planned to sell the paper to institutional investors, afterwards. But adverse market conditions drove yields up and the deal was shelved. A Lucent spokesperson declined to specify the yield Lucent and TeleCorp were seeking.

Reich & Tang Capital Management has hired Hamilton Hadden to the new position of head of credit research for the firm's New York-based fixed income group, Global Investment Advisors, to accommodate an increase in assets under management. Formed in 1998 by a group of investment advisors who, like Hadden, come from J.P. Morgan Investment Management, GIA now manages some $700 million in assets, up from $150 million a year ago. Eduardo Cortez, a GIA co-founder, says the expanding asset size allows the firm to create a more formal division between analysis and portfolio management, though each of the investment advisors at the firm does a bit of both. Cortez says he may hire a slightly more junior credit analyst in a year or so, if the size of assets doubles or triples over that time.

Charles Wyman, a high-yield telecom analyst and principal, has left Morgan Stanley Dean Witter for Pacific Investment Management Company in Newport Beach, Ca., according to BW sister publication Telecom Financing Week. A PIMCO official confirms the hire, but did not have his starting date or title. He did note that Wyman will be reporting to Craig Dawson, the head of the high-yield group. Wyman had been based in New York.

Under the gun because of a congressional deadline, the Federal Reserve by May 12 will introduce an interim rule that imposes new regulatory restraints on derivative transactions between banks and their non-bank affiliates, industry sources predicted last week. Normal procedure would be a proposed rule offered for a period of public comment. The concern in industry circles last week was whether the new interim rule would designate derivatives transactions with affiliates as "covered transactions." In that case, billions of dollars worth of derivative flows could be subject to transaction size limits and collateral requirements under Section 23A of the Federal Reserve Act.

Some sellside banking analysts are raising eyebrows at Bank One Corp.'s (Aa3/A) acquisition last week of Wachovia Corp.'s $8 billion portfolio of consumer credit card receivables. They argue that the threat of an extended economic slump could lead to widespread customer default. Also cited as a risk is the bank's already substantial credit card exposure, through credit-card issuer First USA, which has been struggling and has yet to show clear signs of a turnaround, they add. A Bank One spokesman declined comment.

Gary Katcher has resigned from his position as head high-yield trader at RBC Dominion Securities in New York. He declined comment on why he left, other than to say he feels like taking a break from the business. The junk bond veteran, who has worked for Bear Stearns and Merrill Lynch, says, "I left of my own free will. Those guys are definitely making a go of it and I wish them the best." Katcher believes RBC has promoted Salvator Abbatiello to fill his position, but Abbatiello could not be reached for comment as BW went to press.

Commerzbank Securities, the U.S. arm of German banking giant Commerzbank, has added seven new staffers to newly created sales, trading and strategy slots in New York, according to a senior bond official. This official says the firm has a headcount of about 265 in the New York fixed-income division, and is looking to move to about 300. Mergers and consolidation, and bulge-bracket hiring freezes, have given second-tier dealers like Commerzbank the opportunity for fast growth, he says, referring to the timing of the move. He adds the firm's is looking to leverage its position in European league tables, and its European institutional client relationships, to an expanded U.S. bond trading presence. He says the focus will be on secondary trading and sales, rather than competition for underwriting mandates.