B&B in the news
Terri Duhon speaks to Kim Greenhouse about her book, How the Trading Floor Really Works, and gives anecdotes from her time on the trading floor
PBS Frontline's Money, Power & Wall Street: The inside story of the financial crisis, April 24, 2012:
Terri Duhon discusses the origins of synthetic securitization in Episode 1 of the program
Terri Duhon's full interview with PBS Frontline's Martin Smith on Feb 6, 2012
Anu Munshi speaks to DerivSource about the unintended risks of the new OTC derivatives market given regulatory changes and central clearing requirements
Terri Duhon provides expert witness testimony in CRSM vs. Barclays case
Anu Munshi comments on the varied conclusions reached by the Financial Crisis Inquiry Commission:
"If I had to choose which narrative I agree with most, I'd choose All of the Above. The dissenting reports reflect the ideologies (or should I say lobbies) of the various groups, but in fact everyone played their part in the financial crisis.
Pinning down the cause is hard enough. The real challenge is going to be garnering a consensus for preventative measures going forward that serve their purpose rather than just adding to an already complex mound of red tape. And implementing them."
Please click on the link above for the comment and the Economist article.
Anu Munshi speaks to Creditflux about competition in CDS clearing
Explaining Credit Default Swaps on www.itsrainmakingtime (excerpt):
What are credit derivatives? What is a credit default swap? Why were they created, how do they work, and whom do they benefit? Is there anything positive about them, or are they really just instruments of mass destruction? B & B Structured Finance Managing Partner Terri Duhon and Partner Betsy Mettler join us with Web of Debt author Ellen Brown to shed much-needed light on this complex topic.
A comprehensive overview of the history and uses of derivatives, including credit default swaps and a discussion of counterparty risk and the role of exchanges.
Creditflux article on CDS clearing initiatives and competition, Dec 2009: excerpt
"It is good to have more contenders, but ICE is relatively established," says Anu Munshi, partner at consultancy firm B&B Structured Finance. "It is only recently that CME has teamed up with the new buy-side founding members."
Betsy Mettler talks to Reuters about Thomson's settlement as a test case for the auction process with Restructuring as a Credit Event.
Interview with Tim Harford from BBC News, August 21, 2009:
Terri Duhon discusses the abuses and misuses of credit default swaps and structured credit products.
Click here for the BBC Podcast (Terri's interview starts around the 22 minute mark)
"Sir, George Soros' approach to financial reform (June 17) is comprehensive and co-ordinated, and much needed in times like this. It's unfortunate then that someone with such an in-depth and nuanced understanding of financial markets takes an extreme and unbalanced view of credit default swaps. True, they have played a large part in the financial crisis, but so have banks, investors, regulators and governments. Banning CDS seems to be not only an overly simplistic solution but too harsh a punishment for a product that has real utility."
Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe
Terri Duhon's role in the creation and risk management of JPMorgan's BISTRO described by Gillian Tett, Assistant Editor at Financial Times, in her book published in May 2009
"A year after Duhon took on the post, she got word that Bayerische Landesbank, a large German bank, wanted to use the credit derivatives structure to remove the risk from $14bn of US mortgage loans it had extended. She debated with her team whether to accept the assignment; working with mortgage debt wasn’t a natural move for JP Morgan. But Duhon knew that some of the bank’s rivals were starting to conduct credit derivatives deals with mortgage risk, so the team decided to take it on.
As soon as Duhon talked to the quantitative analysts, she encountered a problem. When JP Morgan had offered the first Bistro deals in late 1997, it had access to extensive data about all the loans it had pooled together. So did the investors who bought the resulting credit derivatives, since the bank had deliberately named all of the 307 companies whose loans were included. In addition, many of these companies had been in business for decades, so extensive data were available on how they had performed over many business cycles. That gave JP Morgan’s statisticians, and investors, great confidence in predicting the likelihood of defaults. But the mortgage world was very different. For one thing, when banks sold bundles of mortgage loans to outside investors, they almost never revealed the names and credit histories of the individual borrowers. Worse, when Duhon went looking for data to track mortgage defaults over several business cycles, she discovered it was in short supply."
Terri Duhon interviewed in The Sunday Times - 12th October 2008
News at Ten
Terri Duhon interviewed on ITN's News at Ten - 8th October 2008
The Monster that ate Wall Street
Terri Duhon interviewed in Newsweek - 6th October 2008
Bloomberg TV Terri Duhon speaks about the credit crisis on Bloomberg TV
Feb 2008, Mar 2008 and Sep 2008
Derivative thinking, The Financial Times, May 30, 2008: excerpt
Most important of all, JPMorgan's top management had a compelling reason to innovate. At the time, the bank had so many loans on its books that it was finding it expensive to keep doing business: it needed large “rainy day” reserves to protect against the chance of the loans turning sour. Hancock's team believed that if they found a way to sell this “default risk” to somebody else by repackaging the loans into derivatives, then they could persuade the regulators that they did not need to post such big reserves. “They say necessity is the mother of invention,” recalls Andrew Feldstein, a former lawyer who worked with Hancock. “In this case, JPMorgan had a good reason to look at how it handled credit.”
In the late 1990s, men such as Feldstein were trying to develop financial techniques that would turn loans into derivatives they could sell on. They started off doing this on an ad-hoc basis but soon discovered that if they created bundles of derivatives contracts linked to loans, then it was easier to sell these instruments to investors - in the same way that it is easier for banks to sell an investor a stake in a mutual fund than shares in an individual company.
Later generations of bankers would refer to these derivatives bundles by the unwieldy name “synthetic collateral debt obligations”. But JPMorgan christened its brainchild Broad Index Secured Trust Offering - or Bistro. Within a few months, it was feeding a wide range of assets into this financial machine, ranging from corporate debt to student loans, and generating fat profits. “The business we were doing grew exponentially,” recalls Terri Duhon, a young banker from Louisiana who was part of the Bistro team. “We went out and 'Bistro-ed' everything we could.”
Banken blockieren Kreditfutures, Financial Times Deutschland, May 4, 2007: excerpt translated from German
Betsy Mettler, partner at the consultancy B&B Structured Finance, which specializes in credit derivatives, sees opportunities for exchange-listed products. The exchanges however need to be creative. "The products should not simply mirror the non-exchange listed products", emphasizes the consultant, who previously worked in the credit derivative department at JP Morgan.
Innovation: Financial inventors underpin success, The Financial Times, March 26, 2006: excerpt
But the City has also frequently demonstrated its capacity to adapt others’ innovations to its clients’ ends. Terri Duhon, managing partner at B&B Structured Finance, a training and consulting firm, recalls that during the late 1990s US firms such as JP Morgan, where she used to work, moved teams across the Atlantic to London, where they adapted simple structured credit techniques, first developed in the US, for customers as varied as German Sparkassen (state-owned regional savings banks) and Dutch private investors.
“We were taking the basic products and applying them to a larger and more diverse group. As a result, the development of the business really took off in Europe. By 2001-02, it became very obvious that the growth of what we were calling a structured credit market was really centered on the London market.”
Creditflux Inside Guide to Next-Generation Credit Derivatives, Fall 2005: excerpt
Options on CDS: Anu Munshi, vice-president in credit derivatives marketing at JP Morgan in London says that ”investors are increasingly putting on plays on top of their core strategies. As clients have grown more comfortable with trading options they are looking at ways of playing with these strategies," she says, "for example by selling out-of-the-money puts to partly subsidize the cost of buying an at-the-money put. Another example is selling out-of-the-money calls and taking more risk to spread tightening to lower the cost of buying puts." Munshi says that investors are also looking increasingly at strategies that combine options with an underlying credit derivative trade. "We are seeing combined credit default swap and options strategies, such as buying protection and selling an out-of-the-money put," she says. "You cap the upside, but the premium from selling the options partially or wholly offsets the cost of carry from buying protection."
Entrepreneurs Like the Look of Credit Derivatives, The Financial Times, July 11 2005: excerpt
“Lots and lots of investors are asking banks for training in credit derivatives,” echoes Terri Duhon, another veteran of JPMorgan’s credit derivatives business who has established a consultancy and training group, B&B Structured Finance. “But the banks don’t have the capacity to do all that training, except for their very best clients. The exponential growth in the credit derivatives industry has surprised everyone, which has highlighted the need for third party services.”
The Wharton Journal
Augusto Pinto, WG '06
"First Structured Credit Derivatives Teach-in a resounding success"
Excellent trainer and course!
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