An unstable asset-backed securities market is getting even more volatile as a number of veteran researchers are moving houses and shaking up businesses.
In the last few months, several ABS players have raided their rivals' top research pros, in some cases overturning research operations that have been in place for at least half a decade. Most recently, Chase Manhattan Corp. set the Street abuzz with its poaching of three longtime mortgage analyst pros from Merrill Lynch & Co. that will likely force out its old head of ABS research, Tom Hourican.
Such changes in research departments are echoing the tumultuous moves that have occurred in the overall securitization market since New Years, including the wholesale poaching of Credit Suisse First Boston's ABS team by Deutsche Banc Alex. Brown and the subsequent raid by CSFB of Prudential Securities' longtime ABS veterans.
While such major-league moves are to be expected as the ABS market becomes more like a typical Street sector, the growing dislocation of research franchises that have long been in place, in some cases since the ABS market's infancy, is a sign that obtaining top-level staff is becoming necessary in all areas of the business.
Top-notch research is becoming increasingly important, Chase officials said. "When clients need to decide which phone to pick up, we'd like to think that they will do transactions with us based in large part upon the quality of information and research we can provide them," said Michael Malter, managing director and group head of global securitized finance at Chase.
The poachings come against the backdrop of a weaker ABS market this year, as ABS is facing many of the troubles that have plagued its sister fixed-income markets such as high-grade and high-yield corporate bonds. New issuance and secondary trading levels are down this year due to volatility caused by the inverted Treasury curve, investors pushing into equities at the expense of bonds and further threats of interest rate hikes, among other factors.
Indeed, Moody's Investors Service said that the roughly 15% ABS issuance decline during the first quarter, with $44.2 billion in new deals compared with $52.8 billion in first quarter 1999, affected all asset classes except for student loans.
With competition heightening and market shares harder to come by, an aspiring top-tier ABS player like Chase, which is ranked fourth year-to-date with $6.7 billion in proceeds, up from eleventh in 1999, is looking to bolster its ranks on all fronts. One weakness had been sectors of its research department, especially mortgage-related product, officials admitted.
"We feel that as our business has grown there has been some areas to which we needed to increase our commitment," Malter said.
Thus the Merrill hires. Merrill veterans Chris Flanagan, Ralph Diserio and Ryan Asset, who were described by one former colleague as "long-term Merrill guys who wanted to run their own show somewhere else," started their new jobs at Chase last week. Flanagan is the central figure of the group, as he becomes head of overall ABS research, not, as some early rumors had it, simply concentrating on mortgage topics.
Chase's former ABS research head Tom Hourican was at press time still at the company, but according to sources familiar with the bank, he is "actively looking for opportunities outside of ABS research and maybe outside of Chase." Hourican's staff now reports to Flanagan.
The muddled situation at Chase exemplifies the difficulties of taking apart research efforts that have been, in many cases, long-time fixtures on the Street. For example, Chase hired Hourican from Standard & Poor's in June 1996 as managing director and head of ABS research. Other veterans like Dan Castro at Merrill have been in their roles even longer.
Another example can be found at Deutsche Banc, which nabbed longtime CSFB pro Karen Weaver as its managing director and head of securitization research last month. Weaver was a fixture of Credit Suisse's asset-backed team since the early 1990s and had become almost synonymous with that shop, observers said. Her departure from CSFB was another sign that the market was moving out of its small-town boutique phase, one longtime pro said. And rumors surfaced last week that Chip Schorin, who has headed Morgan Stanley Dean Witter's ABS research since January 1996, is possibly moving to take broader responsibilities at the shop.
Oddly, despite being in the center of the research wars, Chase said it has otherwise has weathered the general storms affecting the asset-backed market, as most of its key ABS traders and bankers have remained in place.
The shop has made some new hires and realignments recently, however. Brian Fiet has been named as vice president of Chase's Latin American securitization group, while current Chase MD Brian McDonald has been moved from the ABS trading desk to run its ABS loan syndicate business, officials said.
But much of its activities seem to have been concentrated in mortgages, beginning with its hire late last year of UBS Securities/Freddie Mac veteran Kevin Finnerty to head its MBS operations. Since then the shop has nabbed Banc of America Securities mortgage pro Lawrence Doyle and nabbed some of the top MBS traders from Donaldson, Lufkin & Jenrette, including Robert King and Alan Galishoff.