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Collateralized Debt Obligations
CDO's as Self-Contained Reinsurance Structures
December 10, 2000

By Morton N. Lane
“Convergence” between the capital markets and reinsurance markets is not the hot topic it once was.  However, “convergence” has led to this:  the prime mover of insurance risk via securitizations is an investment bank (Goldman Sachs) rather than an intermediary; and, one of the most active leveraged underwriters of capital market credit risk is a reinsurer (Swiss Re) rather than a hedge fund or bank.  Both phenomena provide testimony to the institutional consequences of “convergence” but other effects, particularly product design, are also continuing apace.  One such product is the Collateralized Debt Obligation (CDO) – subspecies of which are Collateralized Bond Obligations (CBOs) and Collateralized Loan Obligations (CLOs).

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A Case Study in Credit Analysis
Capital One (or Capital Two)?, July 31, 2000

By Morton N. Lane

It was the best of reports; it was the worst of reports.

We stretch the literary point, but, on July 21, 2000, Morgan Stanley Dean Witter (MSDS) and Grant’s Interest Rate Observer (Grant’s) opinioned on the credit worthiness of Capital One Financial Corp (COF).  For the big institution, the glass was half full; for the newsletter, it was half empty.  The full text of the evaluations is below, together with COF’s financials.  At its core, however, their difference can be seen from the following excerpts.

Clearly, there is a divergence of view.  Although neither suggests a problem credit, MSDW would charge ahead – invest more.  Grant’s suggests caution – lighten up.
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