Could someone explain these terms please

cullenswood

Hi,

Would anyone be able to give me an expanation of what the following would mean: "Collateralised Debt Obligations (CDO's)" and "Commercial Paper Conduits"

I have an interview with a major bank and might be asked what I know about these.

Thanks

fintan

Check out this website for an excellent history / explanation of CDO's

http://db.riskwaters.com/public/showPage.html?page=133144

Short answer is that they are types of debts eg. mortgages. That are lumped together and sold as a package.

As for commercial paper conduits, never heard of them, but a quick google brings up this

http://www.securitization.net/pdf/Fitch/ABCP_1Dec04.pdf

seems to be a fancy name for asset swapping, and in this particular instance, setting up a special purpose vehicle (off-shore shelf company) and use it to swap stuff off your balance sheet. to lower your offical liabilities which then allows you to lend more money or whatever.

antoinolachtnai

It sounds like you are applying to one of those places that specialize in SPVs (Special Purpose Vehicles, and pronounced 'spiv' by those in the know, I think) for various purposes.

I presume you know the difference between debt and equity, what a bond is, what a coupon is, what a dividend is and so on ...

This stuff isn't desperately hard to grasp, but it does take a while to get a handle on all the vocabulary.

fintan

Just out of curiosity, companies in Ireland specialise in such products?

antoinolachtnai

Yeah, down in the IFSC there's some fairly exotic stuff going on, because of the unique regulatory and tax situation. I am no authority on the whole thing, but there seem to be a lot of small boutique banks and Re companies.