Can structured credit make a comeback?

3 December 2008

2 minute read

If there were a critical list for financial services, structured credit would be in the dangerously acute category. CDO issuance is down around 90% and complex structured products are in the running for the accolade of most noxious invention of all time.

In these circumstances, can there be any future for the thousands of people who made their careers in creating and selling structured credit products?

One London-based structured credit headhunter, says there won't be life in the structured products sector "for ages" and that most of its proponents are out of the market: "They're either travelling or in denial."

However, structured credit has had setbacks in the past (in the form of CMOs) and insiders insist there is long-term hope. "Structured credit will come back again," says John Mooren, a credit derivatives veteran at Reoch Credit. "There may well be CDO-like products, and synthetic CDOs provide an efficient mechanism for transferring corporate risk."

He adds, "Fancy stuff like CPDOs and CDO squareds are less likely to enjoy an imminent revival, but who knows what will happen in the next upward cycle?"

The big question may be what structured credit professionals should do in the meantime. Any suggestions would be much appreciated, unless - of course - you think structured credit is dead and gone.

AUTHORAnonymous

Insider Comment

aj
aj
13 January 2009
even if we parallel structured credit to dot com of new times, extending the same fate i dont see syn cdos disappearing from the horizons completely.. yes the mist will clear up a bit.. the world has moved from trading a BBB risk as AAAs, to trading a AAA risk as BBB..does it not call for correction in the reverse sense, something which a new derivative will bring..
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Ro
Robert Fanning
17 December 2008
Stop thinking like salesmen and arbitrageurs.
The financial melt down is based on confidence and perception.
Start thinking about how you can be the solution rather than the cause of the problem.
This rancid mess has to be reverse engineered.
It has to be located and unwound.
You as a financial analyst ,can be paid to find it, evaluate it, tear it up or put it on to a listed exchange with a transparent clearing corporation where upon your seal of approval rescues the financial system.
Is there anyone with honor left in the financial services world?
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An
Ankur Goyal
4 December 2008
"I furthermore do not think that structured credit was the cause of all what happened in the last 12 months.. what in my opinion caused it were debt levels or consumers and other parts of the economy at historically high levels and a gross mispricing of risk"
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gh
ghuesgen
4 December 2008
The market will shrink as regular assets are attractive at current spread levels only when credit spreads shrink to levels (not expected for the next 5 years) of 2005/2006 will we see growth again.
I furthermore do not think that structured credit was the cause of all what happened in the last 12 months.. what in my opinion caused it were debt levels or consumers and other parts of the economy at historically high levels and a gross mispricing of risk
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d
d
4 December 2008
Look at the history of economic "bubbles" -- booms and busts -- for the answer. Demand will recover, but likely not reach peak levels for years.
Being the first out ... or being able to persist in the business both have some value: those getting blown out after cutbacks face longer, more difficult job searches and possibly less severence, etc., to boot.
When the business does recover, odds are strongly against a return of the practices leading to excess.
Urge people to understand psychological phenomenon of "groupthink", which exacerbated poor decisionmaking.
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