Moody's Investors Service named new global rating heads. Noel Kirnon became executive vice president responsible for global structured and U.S. public finance ratings. Michel Madelain was named executive vice president responsible for global fundamental ratings and Andy Kimball was appointed chief credit officer and chairman of credit policy at Moody's Investors Service. Kirnon is now responsible for the global structured finance rating business, including asset finance, derivatives and U.S. public finance ratings. Most recently, Kirnon was senior managing director of the structured finance group, responsible for global derivatives, managed funds and U.S. commercial real estate. Previously, he was a group managing director responsible for Moody's mortgage rating business, and before that, he was a managing director for the rating agency's structured finance ratings throughout Europe, Australia and Asia. Madelain will assume responsibility for all global fundamental ratings, including corporate finance, banking, insurance, financial guarantors and nonbanking finance. Previously, Madelain was group managing director for global banking. He also focused on Moody's corporate ratings in Europe, the Middle East and Africa and held several managing director positions in the U.S. and the U.K.. Kimball, in his new role, will assume responsibility for guiding and coordinating all aspects of the firm's credit policy framework, including credit policy research, rating system process management, performance measurement and oversight of the respective credit committees for the fundamental, public finance and structured finance rating groups. Kimball will have responsibility for communicating to the Moody's Corp. board of directors about developments in credit policy on a regular basis. Previously, Kimball was a senior managing director for Moody's global corporate finance group. Before that, he held senior management positions in Moody's risk management services, information technology and structured finance groups.
Credit Suisse is building up its U.K. fixed-income team while whittling down it U.S. buyside MBS team. In London, Michael Leonard has been appointed a U.K. fixed-income director and portfolio manager, and Vicki Gedge joined the European credit research team as a credit analyst. Leonard will be responsible for helping manage and increase U.K. fixed-income portfolios for institutional and retail clients globally. Gedge will cover sterling and European high-grade and high-yield bonds in the consumer goods and services, retail, tobacco, gaming and leisure sectors. The Zurich-based financial service company has also reported cutbacks in New York. "In line with the current environment and outlook, we have made targeted reductions, primarily within our mortgage-backed securities business," the company said in a statement. However, a source at the investment bank dismissed earlier reports that as many as 500 people had been let go. "It's closer to 150," she said.
Cantor Fitzgerald promoted Shawn Matthews in New York and Scott Moore in Chicago to senior managing directors and co-heads of Cantor's MBS and trading business. "The mortgage-backed and asset-backed market has been in transition as spreads have widened and customers have pulled back from buying riskier asset classes," said Irvin Goldman, president and CEO of Cantor Fitzgerald debt capital markets and asset management. Goldman added that the repricing of credit has resulted in a gaping hole in the credit markets, providing a great opportunity for Cantor. "We're building out desks at our New York office and adding capacity at our regional offices across the country," he said.
Mizuho Securities is gearing up to launch two high-grade CLOs, according to Alex Rekeda, the firm's head of U.S. structured credit. One of the deals, which is set to price in about 10 days, has already sold the senior tranche, equity tranche, triple-B' and double-B' tranches of the transaction. The firm also plans to ramp up its efforts in CLOs, noting the increased opportunity to buy collateral at the right price to make arbitrage work, Rekeda said.
Derivative Fitch updated its criteria for collateralized commodities obligations (CCO) to include a scenario stress test overlay. The rating agency also released an updated version of its Vector CCO model, improving market understanding of the risk dynamics of CCOs and bringing more flexibility and transparency to the sector. The latest Vector CCO allows for analysis of deal tenors between six months and seven years in six-month intervals. It also provides enhanced functionality to calculate "what-if" scenarios on future price movements for the surveillance of existing CCOs. The scenario stress-test overlay reflects the possibility of a structural break in commodities price behavior since 2003 that might not be captured in the historical data. Specifically, the test is designed to protect CCO investors against the possibility that recent price increases of some commodities might reverse themselves. The test introduces a minimum level of credit enhancement so that a CCO structure can withstand a significant decline in the price of several reference commodities from their current price toward their long-term mean price over a short period. The scenario stress test is different for each of the target ratings as well as the tenor of the transaction, as detailed in Fitch's criteria report.
H&R Block last Tuesday said that its subsidiary Block Financial Corp. borrowed $250 million from a $2 billion credit line to fund operations. This is the Kansas City, Mo.-based company's third loan in a little over a month. Block Financial was forced to tap working capital credit lines because the instability in the credit markets made commercial paper hard to sell. The loans are due Aug. 10, 2010. Block Financial last month borrowed $200 million and repaid it with an $850 million loan. H&R Block has struggled this year because the collapse of the subprime mortgage market hurt the company's Option One Mortgage Corp. unit, resulting in millions of dollars in losses. A proposed sale of Option One to Cerberus Capital Management is now in jeopardy because of falling values, and H&R Block is attempting to renegotiate the sale. Last Monday, H&R Block announced that it had fired its independent accountant KPMG as a result of concerns raised by two new members of Block's board of directors. Richard Breeden and Edward Shaw serve as monitors for KPMG's deferred prosecution agreement with the U.S. Department of Justice.
Discover Financial Services announced last Tuesday that third-quarter profit dropped as a result of rising marketing expenses. The credit card issuer said profit for the quarter ended Aug. 31 was $202.2 million, equivalent to 42 cents a share, compared with $241.4 million a year earlier. On a nondiluted basis, Discover earned 42 cents a share, compared with 51 cents in the same quarter last year. Discover disclosed that it had $51.9 billion of loans either on its balance sheet or in securitization trusts at the end of the quarter, 4% more than last year.
GCO Education Loan Funding Corp. temporarily halted the purchase of federal consolidation loans. Chief Executive Officer Ron Page and Managing Director Robert Culnane explained that current market conditions, as well as legislative changes expected to take effect on Oct. 1, prohibit GCO from offering a price for consolidation loans high enough for clients to recover their origination costs. When market conditions correct, GCO ELF intends to offer liquidity for consolidation loans, they said. Despite this temporary stoppage, the company still offers pricing for federal consolidation loans originated before Oct. 1.
Negotiations for a $25 billion buyout of SLM Corp., or Sallie Mae, seemed all but over last week. The investor group told Sallie Mae that it does not plan to complete the deal as currently valued at $60 a share, but that it was willing to discuss a possible transaction under new terms. "Sallie Mae firmly believes that the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to the fullest extent permitted by law," according to a company press release. The buyout group is led by New York-based J.C. Flowers & Co., and includes Bank of America and JPMorgan Chase. Congress earlier approved the College Cost Reduction and Access Act of 2007, which calls for reductions in lender subsidies while cutting the interest rate on government-backed student loans in half. President George Bush was expected to sign the legislation on Sept. 28, and it will take effect on Oct. 1. According to Sallie Mae, the legislation would reduce its net income from core earnings between 1.8% and 2.1% annually over the next five years.
Nationstar Mortgage, Fortress Investment Group's subprime unit, announced that it will no longer accept new loan applications from brokers. The firm's decision to stop all wholesale originations was effective Sept. 21, according to the mortgage lender's Web site. Fortress's subprime operations figured prominently in the news recently, after Democratic presidential hopeful John Edwards said he planned to divest from any lenders trying to foreclose on the homes of Hurricane Katrina victims. Meanwhile, HSBC Finance Corp. is closing its wholesale unit Decision One Mortgage. HSBC Finance will simply originate and service loans via its consumer lending branch network under the HFC and Beneficial brands. Roughly 750 Decision One employees will be affected by the closure of the firm's wholesale nonprime channel.
Freddie Mac reported last week that its retained portfolio for August jumped 19.3% to $732.2 billion, up from a 14.3% gain in July. The $11.6 billion monthly increase is the largest since December 2005. By press time, growth was running at 6% for the year. The portfolio level is just below the Office of Federal Housing Enterprise Oversight's recently revised limit of a $735 billion unpaid principal balance. The GSE noted, however, that beginning Oct. 1, compliance will be determined quarterly based on a cumulative average monthly portfolio balance. The portfolio growth in August came primarily from a $9 billion increase in holdings of Freddie PCs and structured securities. Non-FHLMC agency MBS holdings gained $2.6 billion, as did its mortgage loans. Meanwhile, non-FHLMC non-agency holdings dropped $2.8 billion.
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