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Commerzbank Fattening Up Bond Portfolios
Asset Backed Alert, Harrison Scott Publications Inc. (June 4, 2004)

Commerzbank wants to buy billions of dollars of securitized products over the next few years.

The bank, which already holds some $5 billion of asset- and mortgage-backed securities in a variety of portfolios, expects to target bonds from issuers around the world.

To help build the portfolios, Commerzbank is thinking about combining two London teams that oversee similar structured-product investments for different areas of the bank. That will probably happen later this year, said Stephen Burns, a portfolio manager who handles purchases of securities by the bank's Kaiserplatz Funding commercial-paper conduit.

That vehicle, which also buys trade receivables and other commercial assets, now holds just under $1.3 billion of asset- and mortgage-backed securities with ratings as low as triple B. Burns said he hopes to expand those holdings to $2.5 billion by yearend 2005 - before eventually doubling them again.

Almost half of the securities in Kaiserplatz's collateral pool were issued in Europe. About 40% came from the U.S. The rest are from Japan and Australia. Burns said he plans to maintain that balance as the portfolio grows.

Commerzbank also buys an undisclosed amount of securitized products and unsecured corporate bonds via an on-balance-sheet fund run by Mark Gheerbrant. His portfolio is also expected to grow, although the extent of the planned expansion isn't clear. The bank may combine Gheerbrant's team and Burns' group, although both portfolio managers would still report to their current bosses.

Burns answers to Iain Barbour, who is Commerzbank's global head of debt capital markets. Gheerbrant reports to global credit-trading chief Michael Staveley. Commerzbank is seeking to hire at least three more staffers for their combined teams, which now employ 10 people.

The Frankfurt-based bank is also bringing in Principia Partners to process trade-related data for the combined buyside unit, giving Burns' and Gheerbrant's staffers more time to focus on managing portfolios. Principia's services, which may eventually expand to cover all of Commerzbank's asset-backed holdings, also make it easier for the bank's risk managers to monitor investments, Burns said.



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