KBW, which hired two seasoned mortgage bond traders on Tuesday, wants to add more sales professionals as it expands its presence in fixed income, senior managers at the firm said.

“What we are looking at here is a huge opportunity to be able to attract some very bright and talented people that have been in the business for a long time [and] that have been displaced for various reasons,” said Craig Coats, executive vice president of fixed income at KBW. “At the moment we’ll continue to look for opportunities that come along.”

On Tuesday, KBW announced its hire of Peter Ma, who will lead the firm’s efforts in the non-agency mortgage debt market, and Greg Hargraves, who joins the firm as senior agency pass-through trader.

Both are old hands in the mortgage bond business. Ma, in the business for some 20 years, was most recently at UBS where he was executive director in its MBS trading desk. Hargraves also has nearly 20 years of experience, all of them spent in the mortgage business at Merrill Lynch, where he was the senior Ginnie Mae trader and had responsibility for the firm’s middle-market mortgage business.

At KBW both will report to Don Ullmann, head of KBW’s MBS and agency trading.

"When we had the ability to hire people with 20 years experience at big shops with broad market experience, broad market contacts, broad customer contacts and really extensive product knowledge to us it seemed like it was something we really had to do to help our business grow and grab some market share," Coats said.

Coats and O’Brien said that KBW wants to hire sales professionals that can operate as “generalists,” meaning they can work with mortgage debt, agency debt and corporate debt from financials.

KBW trades and underwrites mortgage bonds, U.S. Treasury and federal agency securities as well as corporate bonds issued by banks, insurers, Reits and finance companies.

KBW’s Obrien says that the firm would like to grow its sales group from 27 to 35. At present, KBW has sales professionals in San Francisco, Chicago, Boston, and Hartford. The bulk of KBW’s sales group is in New York where the firm is based.

"We would like to selectively hire some sales people," O'Brien said. "We [KBW] are going to be very careful in terms of who we hire because, obviously, you have to weigh transferability issues. Its not easy transferring a book [of business] from Lehman Brothers and JP Morgan to KBW. They are different firms. That's why we are being very scrupulous in terms of who we hire."

For now, Coats said, "our mortgage [trading] desk is where we would like it to be." KBW has five mortgage bond traders.

O’Brien said KBW works with investors such as regional banks and community banks as well as larger accounts such as money managers and total rate of return investors. He says that some banks have used TARP money to buy mortgage bonds. "A lot of the banks are using their TARP proceeds to put some mortgage backed trades on," O'brien said.

At the moment, KBW’s mortgage business activitiy is evenly split between agency backed MBS and non-agency MBS, but this likely will change, says Coats. He says the non-agency side of the business will grow because spreads of these securities have widened more than those of agency bonds, in part, because the Fed has been buying agency mortgage bonds.

"A lot of firms have stopped using their balance sheet. We don't use alot of balance sheet. We generally tend to work on orders. We will position securities on the fringe, but we're not a big balance sheet user," Coats said. "We basically are value oriented from the concept of generating ideas and swaps, presenting them for our clients and executing them in the market place."

O'brien added: "We've always thought of ourselves as an idea shop as opposed to a liquidity shop. With the liquidity model in the Street broken, to a large degree, it opens up alot of opportunities for an idea shop like ourselves."

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