BarCap finances restructured Cairn fund

Barclays Capital has completed the restructuring of a $1.8bn (€1.3bn) structured investment vehicle run by UK hedge fund Cairn Capital that ran into funding problems in the face of increasingly tough conditions in the commercial paper market.


Barclays and Cairn said in a statement today they have restructured the Cairn High Grade Funding I vehicle, one of several so-called SIV-lite funds that Barclays helped arrange. SIV-lites rely on short-term commercial paper to fund portfolios of longer-dated securities.

The two companies said the restructuring was made necessary by “the closure of the ABCP market on which Cairn High Grade Funding I had relied for funding”.

The fund has been converted into a cashflow collateralised debt obligation, meaning that it will no longer rely on the asset-backed commercial paper market for funding. The fund’s outstanding asset-backed commercial paper borrowings will be redeemed as they mature, and replaced by longer-term funding.

Barclays is providing the senior debt financing for the restructuring, and the bank said it has hedged that exposure.
Source: efinancialnews.com

Deutsche sells new CDO despite credit crunch

Deutsche Bank has successfully sold a new synthetic collateralised debt obligation referencing the credit derivatives traded on Russian companies, proving investors still have appetite for such risky complex debt instruments despite the turmoil in the credit markets.


The 8.95bn ruble (€257m) CDO, dubbed Vityaz CDO I, closed yesterday some three months after volatility born from the sub-prime mortgage crisis in the US emerged, hitting CDO sales and almost bringing the entire market for the instruments to a standstill.

As delinquencies in US sub-prime mortgages originated last year and this year have risen, so too have concerns surrounding the stability of cash and synthetic CDOs that have used the securities within their collateral pools.

Investors fear that any further deterioration in the sub-prime market could lead to widespread ratings downgrades of CDOs, potentially triggering an unraveling within certain structures, which would in turn lead to heavy losses.

CDOs bring together bonds, loans or other kinds of debt instruments and sell notes that represent different levels of risk in the pool. These run from large triple A-rated tranches, which pay modest returns, to small unrated equity tranches, which bear the risk of the first defaults.

Whereas cash-flow CDOs repackage actual bond and loans, synthetic structures bundle credit derivatives, offering investors a sophisticated way to hedge risk while allowing exposure to credit without buying the underlying asset.

In the Vityaz structure, credit default swaps are pooled on the local currency bonds of a diversified portfolio of Russian companies and financial institutions. The portfolio is managed by Troika Dialog, one of Russia’s leading investment banks.

Yuri Soloviev, first deputy chairman of the board Deutsche Bank in Russia, said: “Vityaz CDO I is a testament to both the growth in non-governmental domestic debt issuance in Russia, and the increased investor appetite for such structured risk.”

Last year saw record global issuance of cash CDOs, at $470bn (€349bn), but there was another $524bn issued in synthetic CDOs, according to the Bank for International Settlements.

Analysts estimate that sales of synthetics in the first quarter were $121bn compared with $92bn the same period a year earlier, according to the BIS.

The Vityaz sale comes a month after Brushfield Capital, the platform created by ABN Amro to sell and manage CDOs, closed a $1.25bn (€900m) CDO backed by asset-backed securities.
Source: efinancialnews.com

Wachovia shifts top real estate banker to Europe

Wachovia Securities has redeployed its top US real estate capital markets banker to London in the latest sign of the US bank’s push to grow its international business.


Bill Green, who was previously head of real estate capital markets in the US, has switched to become head of real estate for Europe as part of a string of changes sparked by Wachovia’s decision in April to combine its real estate financial services, capital markets and investment banking units into a single group.

Wachovia said in a statement Lawrence Gray, the founding head of its real estate investment banking division, and Robert Verrone, head of real estate capital markets for the Americas, will jointly run the integrated real estate business in that region. Rick Abrams will retain his role at the helm of the Asian real estate business.

Tom Wickwire, who runs Wachovia’s structured products division and oversees real estate as part of that brief, said Green’s move to Europe “reinforces our commitment to growth in this important market and adds additional talent to our European real estate business”.

Green’s move comes barely a month after Wachovia hired Maitland Bruce, a former banker at German property lender Eurohypo, as head of European structured finance, reporting to Green.

Wachovia has been on a European growth push in corporate and investment banking since hiring former Dresdner Kleinwort banker Atul Bajpai as chief executive of its business in the region in June last year.
Source: efinancialnews.com

Turkish bank offers Islamic safe-haven

A Turkish sharia-compliant bank has launched a landmark Islamic loan in the hope that it will prove popular as investors seek greater security from non sub-prime issues.


The $100m (€72.5m) Murabaha syndication, one of the biggest of its kind and the biggest from Turkey, was issued by Turkiye Finans Katilim Bankasi.

Humphrey Percy, chief executive of Bank of London and Middle East, a specialist bank advising on the deal, said in a statement: "The completion of this transaction is particularly pertinent given the current climate of economic unease and market turbulence and sends a positive signal about the strength of opportunities available in Islamic finance.”

The Murabaha loan has a two year maturity. HSBC, Standard Chartered and Bank of London and the Middle East led the deal. A source said the pipeline for Islamic deals is healthy, with several more set to launch before the end of the year.

Analysts say the market’s uncertain climate could make Islamic deals more popular. Islamic bonds in particular are increasingly in demand because of their low-risk, high-yield structure and short maturity. On average, the bonds have a maturity of three years, compared with the average European convertible maturity of six years. The average yield on a sukuk, one type of Islamic bond, is 6.6%, compared with 3.5% for a normal convertible coupon.

Murabaha is a common method of finance in Islamic banking. It is a deferred sale of goods at cost plus an agreed profit mark up under which the seller purchases goods at cost price from a supplier, and sells the goods to the buyer at cost price, plus an agreed mark-up.

The first Islamic bank was founded only 32 years ago. However, over the last decade the Islamic banking and finance industry has experienced a period of sustained asset growth at around 10% to 15% per annum, and assets now total in excess of $500bn.

TFKB is the 12th largest private bank in Turkey and the largest in the country in terms of total loans, deposits and branch network, with total assets in excess of $6bn.
Source: efinancialnews.com

Traders switch focus to non-agency mortgages

Bank traders are hoping to profit from what they believe will be a repricing of non-agency mortgage backed securities, believing that a discount caused by the sub-prime fallout is about to be reversed.


Highly-rated non-agency mortgage bonds, issued by banks such as Citi and Wells Fargo, have historically traded in line with their agency counterparts because the quality of the loans is similar.

However, the fallout from the sub-prime mortgage market, where borrowers are defaulting on their payments, has led investors to be more risk-averse. Agency mortgage backed securities have been more appealing because they carry a guarantee of the timely payment of interest and principal. This has caused non-agency loans to trade at a discount.

Laurie Goodman, head of the US securitised products strategy group at UBS in New York said: "Non-agency loans have cheapened dramatically. Our number one trade in the mortgage market right now is to buy super-senior triple-A non-agency securities."

Spreads have remained wide over the past four weeks but mortgage market specialists believe they will narrow, especially as supply will be diminished because fewer new loans are being extended.

"Once this overhang of non-agency paper is cleared up there is nothing behind it. Anything in Alt-A that can go through agency execution, which we estimate is about half the market, will do so. Non-agency super senior mortgage paper without a credit dimension is extremely attractive," said Goodman.

Non-agency bonds have steadily been trading more cheaply since problems in the sub-prime market first emerged in the spring. At the end of March, jumbo Alt-A mortgage bonds with a 6% coupon, which are derived from loans made to borrowers who are typically one notch above sub-prime status, were trading at a price of 32 basis points below comparable agency securities issued by Fannie Mae. By August the discount had widened to 112 basis points, according to data from Deutsche Bank.

Similarly, the discount on prime jumbo mortgage bonds, which are based on loans extended to borrowers with high credit scores, widened from 21 basis points at the end of March to 60 basis points.

In 2005 issuance of non-agency mortgage securities overtook agency issuance for the first time, accounting for 55% of the total.

In July non-agency mortgage backed security issuance accounted for 35.6% of total issuance, with the remaining 64.4% in agency deals, according to UBS.

James Grundy, as associate at Standard & Poor's residential mortgage backed securities group, said: "We expect loan quality to improve over time as the effects of tightened underwriting guidelines make their way through the securisation pipeline."
Source: efinancialnews.com

Merrill turns to finance ministry to boost French position

Merrill Lynch has become the latest investment bank to exploit the changing French political landscape with the recruitment of a senior figure from the Ministry of Finance to boost its position in the mergers and acquisitions rankings.


The US bank has hired Luc Remont, deputy chief of staff to former Finance Minister Thierry Breton, as a managing director in its Paris investment banking business with a remit to cover its large French and European clients.

Yesterday, Breton joined independent investment bank Rothschild as a senior adviser.

The appointments follow a shake-up at the French finance ministry after the election of Nicolas Sarkoky as President early this year.

Merrill will be expecting Remont to boost its business. The bank has slipped to 15th in the French M&A rankings after finishing fourth last year according to Thomson Financial, an investment banking data provider.

Remont, 38, is an énarque – a graduate of France’s powerful École Nationale d’Administration, which grooms budding civil servants to take up influential positions in the French finance ministry.

A large number of énarques have joined investment banks after stints at the ministry, providing banks with lucrative M&A advisory mandates on France’s biggest deals.

Last December, Lazard swooped on the French government for a new partner, hiring Jean-Louis Girodolle, the French treasury deputy director in charge of transport.

Lazard has a record of taking government advisers to become top bankers. Mattieu Pigasse, vice-chairman of Lazard's European investment banking business was a former adviser to ex-prime minister Laurent Fabius.

Other recent hires by banks from government include Jacques Chirac's secretary general Augustin de Romanet de Beaune, who joined Crédit Agricole last year as director of the group’s finance and strategy department.

His hire followed that of Pierre Moraillon, former director of international relations in the French finance ministry, who joined Calyon, Agricole’s investment banking arm, as head of its global consumer group
Source: efinancialnews.com

CLO volumes show life left in structured credit

Investment banks successfully sold around $6.5bn (€4.7bn) of corporate collateralised loan obligations last month, proving there is still demand for structured credit products that part bundle leveraged loans despite broad market volatility.


The sale of CLOs, which with hedge funds have been one of the chief buyers of leveraged loans backing private equity buyouts, is a small triumph for a market that has been one of the worst hit by the tumult since June.

Institutional buyers of CLOs have drastically cut back their exposure to the instruments over the last three months amid the turmoil and growing concerns over the quality of the leveraged loans underwritten by banks.

Analysts estimate that there is a $300bn pipeline of leveraged loans in the US that banks have not been able to sell down or syndicate as a result of the plunge in demand from institutional investors, especially CLO funds.

CLOs are sophisticated instruments that pool senior and subordinated loans ahead of being securitised, repackaged and sold on to new investors as bonds backed with the same collateral but with varying risk profiles.

In the last three years at least, managers of CLO funds, such as Alcentra and Babson Capital in London, and hedge funds have dominated the leveraged loan investor base to the detriment of the share of the market once held by banks.

One leveraged finance banker, said: “The return of the CLO bid for leveraged loans is probably the most important element to getting the backlog of financings done.”

Deutsche Bank said in a report today that CLO volumes in August are still below the monthly average level of $7.4bn so far this year, but the sales represent a significant increase from July’s below-average volume of $3.3bn.

In the year to date, some $60bn of corporate CLOs have been sold on the market, an increase of 3.5% on volumes in the same period the year before, according to Thomson Financial.

However, spreads or risk premiums across CLO tranches have risen or widened out as buyers remain reluctant to increase their exposure, Deutsche Bank said in the report.

It added the volume of leveraged loans being underwritten had slowed considerably over the past two months with August volumes hitting $740m – down from $18bn in July and an average of $47bn per month in the first six months of the year.

Anthony Thompson, research analyst at Deutsche Bank in New York, said: “CLO secondary demand has been tainted by the problems of CDOs of asset-backed securities."

He added: "As long as investors continue to lump CDOs of ABS and CLOs together as products with similar risk profile, negative headlines surrounding the former will continue to negatively affect confidence in the CLO product.”

Univar bid awaits syndication amid shaky credit market

CVC Capital Partners has structured one of Europe's largest buyouts since the summer credit crunch with the €2.5bn ($3.5bn) recommended bid for a listed Dutch chemicals company set to be one of the biggest deals to use major debt funding since the downturn.


CVC is paying $2.2bn for Euronext-listed Univar's equity, plus a further $1.3bn in assumed debt which the company already holds.

To pay for the deal, CVC is putting in about one third of equity into the transaction, valued at $1.19bn.

Bank of America and Deutsche Bank have underwritten $1.25bn in senior secured term loans, a $510m asset-based revolving credit line and $600m in senior subordinated notes, according to credit ratings agency Standard & Poor's.

CVC's equity contribution amounts to about one third of the entire enterprise valuation of the company.

A spokesperson for S&P rated the financial structure of the company as "very agressive," saying its financial structure stood at debt to earnings before interest, tax, depreciation and amortisation of about 6.5 times.

Sources said the banks would soon be coming to market to try to syndicate the debt portion of the transaction to institutional investors, but that the outlook for their success was uncertain.

A credit source said this deal was on the margin of banks' tolerance levels for underwriting large deals at present. He said: "Large transactions involving more than €1bn of debt are extremely difficult to finance in the European market since individual banks are unwilling to underwrite more debt than this at the current point in the cycle."

CVC offered €53.50 per share for the company in August amid analyst speculation that it would lower its bid in light of a change in credit market sentiment reducing its access to debt capital.

The tender period ends on September 19 at 13.00 GMT with the offer conditional on CVC gaining at least 95% of capital, and a possibility to cut this to 80%.

Dutch shareholder HAL Holding, which owns approximately 26.6% of Univar's share capital, has already committed to tender its shares to CVC, in the absence of any offer exceeding €57.50 a share.
Source: efinancialnews.com

China's roller-coaster ride begins

A top analyst has warned that roller-coaster shares price movements in China could become the norm, following Tuesday's 4.5% decline in share prices on Chinese exchanges.


The benchmark Shanghai Composite Index plunged 4.5% on fears of more aggressive tightening by regulators following the release of the latest CPI figure of 6.5% and the pressure of a 200 renminbi billion special treasury bond placing in the market on Tuesday.

Prices recovered somewhat today, but the advance was weak compared to Tuesday's declines, and Jerry Lou, China analyst at Morgan Stanley in Shanghai, said it could signal the beginning of the end of China's stocks bubble.

"I'm not saying China will see such huge swings every day, but it wouldn't surprise me if these kinds of moves every few weeks or so become the norm," he told Financial News.

"There are a lot of price drivers in the market at work that really lack clarity. The market, at these levels, makes it hard to justify the stock prices."

Lou wrote in his daily research note today that China's surging CPI and the floating of the special treasury bonds "seem to be serving as immediate catalysts to trigger an A-share market correction (4.5% Tuesday), while China's accelerating capital account effort should serve as a long term de-rating driver for the A-share market. We reiterate our cautious onshore market view."

Asked about the delayed execution of the government's plan to open access to Hong Kong's markets for mainland investors in China, Lou said he was confident they would get things moving soon.

"I think it's going to happen sooner rather than later. There are more technical procedures the regulators need to go through, both at the China Banking Regulatory Commission and the other regulatory bodies, but I don't think that's going to delay things significantly. Hopefully we should see that in something like a month."

Lou said his biggest worry was that regulatory concern over a potential financial shock could translate into loosened tightening of efforts to allow for a market soft-landing. "I think when the market is overly speculative (in the past three months, the average monthly A-share market's free-float turnover has been 82%), a soft landing is highly unlikely, in any case."
Source: efinancialnews.com

Lazard sets sights on Swiss advisory spoils

Lazard is planning to take on Switzerland’s biggest banks and other top merger and acquisitions advisers after opening its first office in the country as part of its push to grow its European business.


The new office in Zurich expands Lazard's network in Europe, alongside existing offices in the UK, France, Germany, Italy, the Netherlands, Spain and Sweden, to eight countries.

The creation of the office comes less than a year after Lazard won its first European advisory mandate from Nestlé, the world's biggest food company. In December Lazard worked on Nestlé's $2.5bn (€1.8bn) purchase of a business from Novartis, the Swiss drug maker. Lazard reprised its relationship with Nestlé four months later on a second, larger deal.

Lazard said the launch of the office will allow it to “expand our financial advisory services to the Swiss market, where we already have established corporate relationships”. The move comes less than a week after the bank recruited the chairman of European investment banking at UBS and one of the Swiss bank’s former top dealmakers, Ken Costa, as chairman of its cross-border business.

Lazard has hired Rolf Bachmann from consultancy McKinsey & Co as a managing director to run its Swiss investment banking business. Bachmann will report to Antonio Weiss, a vice chairman of European investment banking, and further hires to the Swiss office are in the pipeline.

The bank ranked 14th among advisers on Swiss M&A deals last year, when deal volumes hit a record $83.2bn, according to investment banking research company Thomson Financial.

The group, run by Bruce Wasserstein, has climbed to sixth in the Swiss advisory rankings so far this year, claiming a 12.1% market share, although that is less than half the share boasted by the top three advisers: Credit Suisse with 37.5%; Goldman Sachs with 32.2%; and UBS with 28.7%.

In June, Lazard signed a co-operation agreement with Raiffeisen Investment, the M&A advisory arm of Austria’s biggest banking group, on M&A deals in Russia and across central and eastern Europe.
Source: efinancialnews.com

SG derivatives team hit amid fierce competition for talent

Société Générale’s corporate and investment banking division in London is understood to have lost its ninth corporate derivatives banker in six months with the departure of a specialist covering Greek clients last week.

Dimitrios Planiotis, who covered the Greek corporate sector for the investment bank, resigned last Thursday in the latest of string of bankers to have left its European corporate derivatives coverage team since March, according to Financial Services Authority records. It is not known whether Planiotis is joining another bank.

Other departures include Fraser Dixon and Florence Loras, who both covered UK companies, and former German corporate coverage bankers Bernard Fievet and Hendrick Sperling.

Dixon has joined JP Morgan, Loras and Fievet have moved to French rival BNP Paribas while Sperling is set to join UBS following his resignation in mid-July. All four have joined their new banks with a similar remit.

In addition, Tamas Haiman left to join Barclays Capital, covering companies in emerging market countries throughout Europe, Middle East and Africa.

According to headhunting sources, at least three other specialists from the team covering clients in Italy, Spain and Benelux have left in the "last few months".

While the departures will have been a blow to Société Générale, the moves reflect the heightened competition between banks to hire talent in one of the fastest growing and most lucrative areas of corporate finance and fixed-income capital markets.

RIval banks have suffered similar staff turnover over the same period.

A spokesman for the Société Générale CIB in London said: "SG is known for its excellence in the corporate derivatives business, which generally speaking is a competitive area in terms of recruitment."

He added: "Our turnover in this field is standard when compared to the market. Since the beginning of the year we have recruited, or are in the process of doing so, and will continue to build on our excellence in this field."

The moves come amid difficult times for investment banks after months when turmoil in the credit markets has left some nursing heavy losses.

On Monday, Société Générale’s chief financial officer, Frederic Oueda, warned of lower quarterly investment banking revenues as a result of difficult market conditions but maintained its 2007 to 2008 financial targets.

At a Lehman Brothers investor conference in New York, Oueda said although it is too early to give a global picture “it is likely that revenues in corporate and investment banking will be lower in the third quarter” compared with the same period the year before.

He added the bank expects a low contribution from trading, which generally represents a third of the investment banking division revenues, as it had reduced trading positions to contain risk.

However, Société Générale maintained its 2007 to 2008 targets for organic growth on risk-weighted assets of between 10% and 15% a year, a post-tax return on equity of 20% and a dividend payout of 45% in the medium term.