Collateralized debt obligations, or CDOs, came to infamy 10 years ago as a hallmark of the global financial crisis. Now, Citi wants to once again become the dominant player in this $US70 billion market.
Bloomberg News reports that Jia Chen, a 35-year-old director at the bank, has spent two years between New York and London hawking synthetic CDOs to potential investors — and promoting returns as high as 20%.
Chen’s no newcomer to CDOs, either. While still relatively young by industry standards, the “numbers-focused wonk with an uncanny understanding of the ins-and-outs of structured credit,” has spent her entire career at Citigroup after graduating from MIT, according to her LinkedIn profile.
Ten years after the recession, low volatility in financial markets coupled with near-zero interest rates have left investors looking for higher returns, at the expense of much higher risk. CDOs, which bet on the performance of mortgage-based products, among other things, can provide this.
A Citi spokesperson reiterated to Bloomberg that the products were fundamentally different — and thus safer — this time around because “every part of a synthetic CDO deal is distributed to investors.”
The bank returned to the CDO market in 2013, but demand didn’t pick up until 2015. Today, the products make up about $US100 million in revenue annually, or just 0.5% of Citi’s total income.