Deutsche Banc Alex. Brown's poaching of a lucrative tobacco legal fee securitization mandate from Morgan Stanley Dean Witter is the latest brass-knuckle move the shop is making in a bid to dominate the asset-backed securities market.

Deutsche's ABS group has gone from being ranked 19th in first quarter 2000 to its current rank of seventh, and the shop's eyes are now trained on taking out its remaining competitors, which include Citigroup and Credit Suisse First Boston, former home to the majority of Deutsche's new ABS team. To do that, the shop is going to provide a huge cash commitment to the secondary market as well as keep nabbing crucial mandates, Deutsche pros said.

The shop's latest coup is winning the lead underwriter and structurer role for the first in what could be several securitizations of fees awarded to law firms for their role in settlements between tobacco manufacturers and state governments. Morgan Stanley reportedly had originally won the mandate last year, but disagreements between the legal firms and the underwriter about the deal structure provided an opportunity for Deutsche to come in and make its case. Deutsche received the mandate sometime in the last month, sources said.

The deal will be a private/Rule 144A transaction and thus details on size and timing are still scarce. Deutsche declined to comment on the deal. The potential for tobacco legal fee securitization is vast: about $8.2 billion in legal fees have been awarded to lawyers in Texas, Florida, and Mississippi alone. Some analysts have predicted at least $20 billion in overall legal fees will be ultimately awarded.

"This is a good product," said one source familiar with the upcoming transaction. "Lawyer fee awards are better to structure because there is a lot less risk" than a securitization of tobacco settlements by municipalities, which have the potential to be reduced in size by legal challenges. To no surprise, however, the lawyers' slice of the pie will likely remain untouched, the source predicted.

The tobacco mandate is just one in series of high-profile scores by Deutsche's new ABS group in the four months since it brought nearly 50 former CSFB pros over to revive its comatose securitization business.

By winning the services of managing directors Phil Weingord and Jorge Calderon, who co-headed CSFB's ABS operation to win the market league tables last year, Deutsche has expanded its securitization business to reach a much wider variety of issuers. Already, the shop has priced deals from the such issuers as MBNA Inc., Capital One Financial Corp., KeyCorp. and Western Financial Inc. - popular and regular ABS issuers that Deutsche formerly used to watch from the sidelines.

And the shop is not only looking to make an impression in pricing deals. Taking into account investor and issuer complaints about lack of liquidity in secondary ABS trading, Deutsche plans to make far larger markets in secondary than its competitors are capable of. "We're going to be running the largest trading book of any ABS firm," Weingord said in an interview last week. "We're going to be the biggest provider of liquidity in the secondary market."

Putting Up, Not Shutting Up

The key is the commitment that Deutsche Banc's parent company, Deutsche Bank, is willing to provide in order to establish itself in the U.S. fixed income markets. While Deutsche Bank has had several failed attempts in the past to create a U.S. presence in such areas as ABS, this time it is going to back up its claims with serious cash, observers said.

"They're committed to the business," Weingord said. "They're committed to adding resources if necessary and committed from a capital perspective. Having a strong balance sheet and providing liquidity are becoming essential to [being] a leader in this business."

While the Street was surprised by Deutsche's mass poaching of top CSFB ABS pros, the market may still be unaware of how serious the relocation was, he said. While initial claims were that about 20 officials had come over to Deutsche with Weingord and Calderon, that was only the first wave. Within four weeks, about 25 more pros had come over. Among the hires were CSFB's former head of ABS research, head of ABS trading, many senior accounting officers, and the head of its conduit.

What the wholesale relocation has done is to enable the new Deutsche shop to hit the ground sprinting. Relationships forged between former CSFB ABS bankers and researchers have already borne fruit for Deutsche. In particular, the winning of the tobacco bond mandate ties directly to the former CSFB bankers' longtime relationships with legal firms working on tobacco settlements.

Weingord said a diverse ABS group wins more deals: "Why do clients give firms deals? It's a combination of providing them with capital markets support, structuring ideas, good consistent coverage, warehouse financings and research," he said. "It's a full complement of services you have to provide a client."

While Deutsche has its eyes on being in the top three or so underwriters in the ABS market, pros acknowledge it is going to take some time to get there. At half-year 2000, for example, the shop had a 4.7% market share compared with Salomon Smith Barney, with 15%, and Lehman Brothers, with 10.8%. The new Deutsche team is confident, however, that it is only a matter of time before they are back on top.

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