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Whispers: February 11, 2008

BNP Paribas has tapped a new global head of fixed income and quantitative

research from among its own ranks, hiring Guillaume Amblard, the current captain of the company's global interest rate and foreign-exchange trading desk. Amblard, who has been with BNP since 1990, will lead fixed-income trading and helm mathematical statistical modeling for fixed-income products. He will report to Frederic Janbon, the global head of fixed income. Among other jobs in this capacity, Amblard will oversee structured credit, credit arbitrage and flow credit trading. Over the past couple of years, BNP has been renovating its fixed-income house, and it brought the foreign-exchange and interest-rate trading desks together under one roof last year, which was headed up by Amblard.

Fitch Ratings posted a revenue decline of 9.1% in dollars during its first fiscal quarter, according to Fimalac S.A., its parent company. Coupled with expectations of slow ABS issuance for the rest of the year, Fimalac said it would lay off about 150, or roughly 7% of its employees by year end. The company also said it would reduce variable compensation expenses. The rating agency reported revenue of $202.1 million for the firm's first fiscal quarter, compared with $222.3 million for the same period a year earlier. Despite the latest results, Fimalac says it sees opportunities to provide various business services to the financial services industry through Fitch Ratings and the division Fitch Solutions, which was created in January. Also, the rating agency announced that it began to rate paper issued by Canadian ABCP conduits.

The Mortgage Bankers Association (MBA) announced last week the appointment of Michael Carrier as senior director of secondary markets in MBA's government affairs department. Carrier has left Fannie Mae after serving as director of regulatory inquiries for the compliance and ethics department.

Seattle-based law firm Hagens Berman Sobol Shapiro (HBSS) has launched an investigation into the sales and marketing of CDOs by UBS to municipalities and institutional investors, suggesting that the firm may have not made the appropriate disclosures. This follows the recent announcement made by the U.S. Justice Department that it was looking into whether the firm committed fraud in the packaging and selling of the product.

Standard & Poor's said it will establish an ombudsman to whom issuers, investors, employees and other market participants can voice gripes about potential conflicts of interest, business integrity issues and compliance processes at the rating agency, S&P said. The ombudsman will report to the president of S&P but will not be part of S&P management, and his or her compensation will not be tied in any way to S&P/McGraw-Hill business results, the rating agency said. This announcement takes place among a series of actions the rating agency is taking to strengthen its rating process. These actions also include hiring an external firm to conduct independent reviews of S&P Ratings' compliance and governance processes, reducing the time that lead analysts are able to cover the same entities to five years, increasing the level of employee training on compliance programs as well as increasing the amount of hours and course offerings in analyst certification training. The rating agency also said it will provide insight into non default risks such as liquidity, volatility, valuation and recovery; better explain ratings comparability across asset classes; and establish minimum portfolio disclosure criteria for structured securities servicers, among other actions.

Babson Capital Management last week assumed the management of Osprey CDO 2006-1 Ltd. The collateral portfolio of the Osprey CDO includes both high yield bank loans and mezzanine tranches issued by other CLO funds. Babson created its first structured fund in 1991 and now manages more than 50 CDOs totaling more than $21 billion in assets, according to Dec. 31 data. Since October 2003, the firm has assumed management of nine CDOs.

MBIA raised about $750 million in a common stock offering as part of its capital strengthening plan announced last December, according to the company. JPMorgan Securities and Lehman Brothers acted as joint book runners on the issue. Also, Warburg Pincus agreed to a backstop for the offering by agreeing to purchase up to $750 million of convertible participating preferred stock. That represents a $250 million increase from the $500 million that it agreed to purchase in December, said company officials.

Last Tuesday, GMAC disclosed a $724 million loss in the fourth-quarter resulting from the ongoing troubles in the housing, credit and capital markets. For the year, the firm lost $2.33 billion, which it partly attributed to a $4.35 billion loss at Residential Capital (ResCap). ResCap's problems first surfaced in the latter half of last year when an increasing number of borrowers began defaulting on their home loans. GMAC was downgraded by Moody's Investors Service to B1' from Ba3' following the news.

Bloomberg enhanced its ABS/MBS credit functions to give industry users more detailed information about related securities and the assets underpinning them. The new functions offer users more detailed loan-level data, a super yield table, a new cash flow table and access to triggers.

Standard & Poor's downgraded ratings on 94 tranches from 17 cash flow and hybrid CDOs, which is expected to affect about $8.9 billion in securities. All of the affected transactions are mezzanine, structured-finance ABS CDOs. Most of the debt was secured by mezzanine tranches of RMBS and other structured-finance transactions. A number of factors brought about the downgrades, S&P said, including credit deterioration and recent negative rating actions on subprime RMBS securities. Despite the action, S&P said the ratings on U.S. ABCP should not be adversely affected solely by the ratings on the CDOs.

U.K.'s Egg announced it plans to end the customer agreements of 160,000 clients, which makes up 22% of the bank's Pillar credit card master trust pool. Market reports said that these accounts would be frozen, forcing customers to pay down the balances gradually or refinance elsewhere. The customers affected were either deemed to be of high credit risk or to be unprofitable. The tightening in the underwriting criteria is expected to be positive for the Pillar trust series, considered one of the worst performers in the U.K. credit card ABS sector.

Portuguese state-owned bank Caixa Geral de Depositos (CGD) plans to sell a benchmark euro covered bond, according to market reports. ABN AMRO, Caixa - Banco de Investimento, Dresdner Kleinwort and Natixis are managing the sale. CGD is rated Aa1' by Moody's Investors Service.

More light was shed on the Northern Rock situation last week when brief details emerged on the expected bid by Virgin Group. According to a statement made by the bank, Virgin will inject GBP500 million ($971.69 million) in cash and inject a de facto GBP250 million by rolling in the Virgin Money brand to the new company. The company will also issue GBP500 million in a 25p rights issue to which existing shareholders get a conversion rate of 4.7 new shares for one old share. The rest of the proposal remains confidential, but market analysts said that it appears that Virgin wants the U.K. government to inject GBP500 million as a loan to recapitalize the bank and keep it a going concern in the near term. Meanwhile, Virgin last Wednesday backtracked on its promises not to cut jobs at Northern Rock if its rescue bid is successful. According to press reports, as many as 1,000 positions could be eliminated from the beleaguered mortgage firm's estimated 6,250 work force.

The luxury home builder Toll Brothers said last Tuesday that it is forecasting a 22% decline in home building revenue in the first quarter as a result of the weak housing market. "The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel," CEO Robert Toll noted in a statement.

Clayton Holdings has entered an agreement with Experian(R) to provide analytics and outsourcing services to the mortgage and securitization industries aimed at improving transparency, predictability and loss mitigation. The cooperation will make use of Experian's data and predictive analytics to assess and mitigate risk in the secondary market. The first offering is designed to help servicers determine borrower eligibility for the rate freeze modifications recommended under the plan proposed by Henry Paulson, U.S. Secretary of Treasury.

Moody's Investors Service last Thursday downgraded to A3' from Aaa' the insurance financial strength ratings of the operating subsidiaries of Security Capital Assurance (SCA), including XL Capital Assurance, XL Capital Assurance (U.K.) and XL Financial Assurance. The rating agency has also downgraded the debt ratings of SCA's holding company and of SCA's senior debt to (P)Baa3' from (P)Aa3'. These rating actions reflect the rating agency's assessment of both the holding company's weakened capitalization as well as its weaker business profile due in part to its exposures to the U.S. residential mortgage sector. The rating outlook is negative.

Outstanding volumes of U.S. ABCP will likely begin to recover, according to a report published on Feb. 5 by Standard & Poor's Ratings Services. According to S&P's econometric model, the ABCP outstanding is expected to rise by 12.4% to reach $876.9 billion in 2008. The model uses the dependent variables of GDP, fixed nonresidential investment, corporate cash flow, the CP rate and bond yields to determine future ABCP issuance. The share of ABCP fell to 43.8% in 2007 from 53.1% the previous year. Standard & Poor's expects the share to increase in 2008, but much more slowly than it has in the past. The total U.S. ABCP outstanding for 2007 was $780 billion, a decrease of roughly $273 billion from 2006.

The U.S. Senate overwhelmingly approved a $168 billion economic stimulus plan on Feb. 7, almost identical to the one passed by the House a week earlier. The package is much smaller than the $204 billion proposed by the Democrats. Senate Republican leader Mike McConnell filibustered that proposal, which included an expansion of unemployment benefits and the expansion of food stamps. The stimulus package, which passed by an 81-16 vote, must now be passed by the House and signed into law by President George W. Bush. It is meant as a temporary and timely boost to the maligned U.S. economy. It would give tax rebates ranging between $300 and $1,200. A full rebate will be sent to individuals with incomes under $75,000 and to families with incomes under $150,000, including seniors and disabled.

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