In what seems like an endless stream of write-downs on subprime RMBS and ABS CDO holdings, banks have had to revaluate their positions in the structured finance market, which lately means personnel reorganizations. But not all market participants are convinced that an internal restructuring will help solve the banks' problems.

Citigroup announced a plan of reorganization last week under which there would be more integration between the bank's equity and fixed-income sales and underwriting departments. The combined equity capital markets and fixed-income capital markets groups will form one capital markets origination division with Tyler Dickson leading the group under Jamie Forese. Ward Marsh will continue to head the municipal securities division, while Paco Ybarra will lead the FICC products unit, comprising G-10 rates, FX and local markets, finance and risk treasury, securitized markets, commodities, credit markets, strategy and analysis and the special situations group.

The structure is similar to the one Vikram Pandit put in place at Morgan Stanley several years ago, sources say. Pandit was hired last month to oversee the investment banking and alternative investment operations at Citigroup. "While we would not argue that a different structure would have prevented Citigroup's CDO losses it seems clear that if Mr. Pandit is making personnel and structural changes in the investment bank, he has undertaken an effort to assess and manage its position risks, especially its current CDO risk," Bear Stearns analyst David Hildor said in a research note.

However, many in the market were not entirely sold on the plan. "After losing $8 billion, no reorganization does the trick," said a market participant. "You just need something stronger, amputation, for instance. You are beyond penicillin."

Another market participant agreed, noting that problems at the bank have been brewing for a while now. "Those close to Citigroup pretty much thought, for the most part, things were going to implode there, even before [the market] started to look very bad," he said, agreeing that the personnel adjustments were not a sufficient enough restructuring step. Indeed, the bank said this week it could take a hit of as much as $11 billion in the fourth quarter.

In order to maintain capital, other banks have already started asset sales. CIBC agreed earlier this month to sell part of its New York-based investment bank to boutique investment bank Oppenheimer Holdings. CIBC will slough off its U.S. investment banking, equities and leveraged finance businesses as well as its investment bank in Israel and other units in the U.K. and Hong Kong.

Many firms have cut personnel altogether in order to revive profitability. Jay Eisbruck, a managing director in the asset-backed finance group at Moody's Investors Service left the rating agency last week, as did Dan Curry, a managing director in derivatives and managed funds at Moody's. The two are part of a host of other senior executives to leave the firm. Moody's said earlier this month that layoffs would be part of a restructuring initiative.

Merrill Lynch has also been the target of layoff speculation. While some market participants suggest that 25% of Merrill's fixed-income group will be laid off, others guess 50%. Some argue everyone will retain their jobs, but the firm will get rid of the subprime and CDO groups. Calls to a spokesman for Merrill Lynch were not returned by press time.

Banks have also replaced top management in hopes that new blood will aid in financial recovery. Last week, John Thain, CEO of NYSE Euronext, moved into the CEO position at Merrill Lynch, after Stanley O'Neal's highly publicized exit. Duncan Niederauer, NYSE Euronext's co-chief operating officer and president, will become the new CEO of the company.

However, some are not convinced Thain is the right man for the job. While he has a strong reputation and experience in senior positions at Goldman Sachs, BlackRock CEO Larry Fink was reportedly the frontrunner for the top position at Merrill. "Fink would have brought more of a fixed- income risk management focus, which arguably remains the front burner concern at Merrill, at least in the near term," said CreditSights analysts David Hendler and Richard Hofmann in a research note.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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