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Bankers fight for CDO supremacy

The fastest-growing part of the credit markets is not bonds, loans or commercial paper. It is a curious hybrid of credit derivatives and securitization. The market in synthetic CDOs is growing at an explosive rate and making investment banks plenty of money in the process. But just as the fight for leadership is getting most intense, the most lucrative days of this market may be behind it.

David Peacock

The market for synthetic collateralized debt obligations (CDOs), which did not exist five years ago, is now fast growing and lucrative. It is also, however, one of the most opaque and unquantified areas of the financial markets. Even two years ago, no more than a handful of banks could truly claim to understand the basic structure of the synthetic CDO.

Now that secret recipe has become public knowledge, with a large array of institutions doing synthetic CDOs of one kind or another. And growing numbers of these deals are being done publicly, or at least semi-publicly. That has allowed researchers to put better numbers on the market and start to get a sense of which banks have the largest market share.

The tables shown here, compiled by research firm Creditflux, are the first full-year league tables for the synthetic CDO market.

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