Deutsche Banker Who Might Have Been Selling Clients Low Tranche CDOs In 2005 Arrested For Allegedly Carrying A Gun In Hong Kong

automatic gun

[credit provider=”Keary O.”]

Shen Yan, a senior banker at Deutsche Bank, was arrested last week after airport security allegedly discovered a gun in his luggage.It’s not known why he was allegedly carrying the gun or what type of gun it was. Also unknown: whether the alleged gun was in his carry-on or his checked baggage. Or if it was even his own gun! 

All that is known is that the head of North Asia institutional clients group of Deutsche Bank was arrested at Hong Kong airport last week after a gun was allegedly found in his luggage.

But Yan was granted bail, so it can’t be that serious. However Deutsche Bank has him on administrative leave.

“This is a personal matter for Mr Yan and has nothing to do with Deutsche Bank. Mr Yan is on administrative leave from Deutsche Bank until the matter is resolved,” a spokesperson for Deutsche Bank told Reuters.

Before he was arrested, Yan was a big name at Deutsche Bank. The firm hired him from Credit Suisse, (where he was a managing director and the head of fixed income sales for Australian and Asia) in 2006 to lead its north Asian institutional clients group.

In 2005, when he was at Credit Suisse, Yan had some interesting — and it turns out, prescient — things to say about the CDO market.

From Yan’s 2005 interview with

CDOs in Asia have come a long way from the days of the traditional cash CDOs collateralised by corporate bonds – these have virtually disappeared in the past 18 months as spreads have tightened. And now other types of collateral – in particular asset-backed securities (ABS) and leveraged loans – have taken the place of corporate bonds.

“Both the leveraged loan and ABS asset classes are senior secured and exhibit low volatility, which has led to very robust performances for these assets when placed in structured vehicles such as CDOs,” says Yan. General tightening in credit spreads and the dislocation in the correlation market have caused higher-tranche spreads – triple-A to single-A – to tighten dramatically this year.

“So participation in these tranches is less and less popular,” says Yen. To compensate, “there is increasing demand for lower-rated tranches – triple-B down – and for equity….”

Yan expects continued cash CDO growth next year, but notes that there has also been rapid evolution in the nature of synthetic CDOs in the region. “The market has evolved from traditional corporate credit default swap-backed, full capital structure CDOs, via single-tranche synthetics, to the current ABS- or CDO-backed CDOs,” he explains.

Traditional synthetic CDOs collateralised by corporate credit default swaps (CDS) are no longer attractive in the wake of much tighter CDS spreads, and until recently investors were moving towards single-tranche synthetics, collateralised by corporate CDS.

“This involves people buying only the triple-A or double-A tranches, while the rest of the tranches are dynamically hedged by the arranging bank using correlation models,” he says. This allows the CDO to be tailored to whatever tranche the investors choose, without the arranging bank having to sell the rest of the capital structure. “

Last year, and in the first quarter of this year, this sort of transaction was very popular with investors in Taiwan, Hong Kong, China, Singapore and even Thailand,” says Yan.

The entire article is very interesting. Click here to read it >