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June 17, 2013

Bid to relaunch synthetic CDO unravels

An attempt by two big Wall Street banks to revive notorious credit boom-era securities blamed for exacerbating the global financial crisis has failed after investors balked at buying some of the derivatives on offer.

JPMorgan Chase and Morgan Stanley have scrapped a plan to sell “synthetic collateralised debt obligations” – sliced and diced pools of credit derivatives – after failing to find investors willing to take on all of the deal’s different pieces.

Bankers at the two Wall Street firms were looking at reviving synthetic CDOs, which were criticised for adding to losses during the financial crisis, after receiving inquiries from some investors hungry for higher yielding investments.

Synthetic CDOs pool derivatives known as credit default swaps and then divide them into different pieces, or “tranches,” with varying levels of risk. The deals allow investors to make amplified, or leveraged, bets on the underlying loans or bonds.”

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Read full Financial Times article here

 
 
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