USFE - US Futures Exchange to Offer Credit Derivatives
U.S. FUTURES EXCHANGE TO OFFER CREDIT DERIVATIVE FUTURES ON AGENCY DEBT
CHICAGO (June 4, 2007) —
U.S. Futures Exchange (USFE) announced today that it will list the first credit derivative futures on Federal Agency debentures, beginning with a government tranche of the CDX™ index including credit default swaps on Fannie Mae and Freddie Mac.
The new product allows for the creation of synthetic Agency notes as well as spread trades against corporate and sovereign debt. USFE currently expects to list the new contracts in the fourth quarter of 2007.
"Default swaps from both Fannie Mae and Freddie Mac are included in the tens of trillions of dollars referenced to the CDX™ family of indexes," said Satish Nandapurkar, CEO of USFE. "Yet, there has never been a distinct 'government' tranche to represent the highest quality credit risk. USFE is pleased to provide fixed income investors with a new, on-exchange opportunity to hedge risk in this area."
USFE collaborated on the design of Agency credit default swap futures with David Boberski, Head of Interest Rate Strategy at Bear, Stearns & Co. Inc., a global leader in futures clearing and execution.
"Agencies are the largest issuers of corporate debt and they deserve a prominent place in credit derivative trading," said Mr. Boberski. "Agency credit default swap futures are a rare example of a product that is relevant to both credit and interest rate traders. While USFE continues the tradition of offering 'government' risk on an exchange, creating the mechanics to match the over-the-counter market is a first for the futures industry and highlights the continued convergence of these markets.
USFE offers a primer on the new product by Mr. Boberski at
www.usfe.com/index_news.html.
derivatives, online trading, electronic exchange, CDS, CDX, ABS, ABX, credit default swapsLabels: abs, ABX, CDS, CDX, credit default swaps, derivatives, electronic exchange, online trading
Banks look to asset-backed securities for revenue boost
Banks look to asset-backed securitiesThe business of turning mortgages and other debt into complex bondlike products has increasingly become a favored tool for investment banks to generate profits. Globally, investment banks reported $30 billion in revenue from asset-backed securities in 2006.
Investment banks are increasingly reliant on the business of turning mortgages and other kinds of debt into complex bond-like products for a significant share of their profits, according to JPMorgan research to be published Monday. Banks globally saw revenues of almost $30bn from asset-backed securities business in 2006, which analysts at JPMorgan estimate is as big as the revenues generated by equity derivatives or cash equities trading. In Europe, Deutsche Bank and Credit Suisse, two of the largest in the field, rely on ABS activity for about 10 per cent of group pre-tax profits, the research will say.
Investment banks are increasingly reliant on the business of turning mortgages and other kinds of debt into complex bond-like products to generate a significant share of their profits, according to research to be published Monday.
Banks globally saw revenues of almost $30bn from asset-backed securities business in 2006, which analysts at JPMorgan estimate is as big as the revenues generated by equity derivatives or cash equities trading.
In Europe, Deutsche Bank and Credit Suisse, two of the largest in the field, rely on ABS activity for about 10 per cent of group pre-tax profits, the analysts will say.
Securitisation is the process of turning financial assets into saleable securities and encompasses everything from the mortgage-backed securities that help fund ordinary home loans to the complex structured bonds known as collateralised debt obligations.
Industry growth has been spurred by investor demand for higher-yielding assets and the desire among banks to offload more of their lending risk into the capital markets.
Kian Abouhossein, analyst at JPMorgan, says issuance volumes in these markets has grown more than six-fold from about $500bn in 2000 to more than $3,000bn last year, about 77 per cent of which was from the US. Mr Abouhossein estimates US banks earned revenues of about $19.9bn from this business while their European peers gained about $7.5bn.
"This has become a big market and is significant for the banks. We would argue that it is at least as big as the equity derivatives or cash equities businesses, which have attracted a lot of attention as stand-alone businesses," he says.
The research is mainly focused on European banks and estimates that four of the top 10 institutions saw revenues of more than $1bn from their ABS businesses. Deutsche Bank is the clear leader, generating more than $2bn and earning pre-tax profits from that of more than $1bn, which is almost 11 per cent of group profits.
"The biggest banks have a cost-income ratio from their ABS business of 50-55 per cent, which is much better than the average for investment banking of about 70 per cent," Mr Abouhossein says.
The second biggest player in Europe is Royal Bank of Scotland, with ABS revenues of $1.7bn and made more than 4 per cent of group profits from the business.
abs, cds, asset backed securities, credit default swaps, derivatives, revenue, risk managmentLabels: abs, asset backed securities, CDS, credit default swaps, derivatives, revenue, risk managment
