03/13/2009

DZ to Discontinue US Conduit Activities

DZ Bank is shutting down its U.S. commercial-paper conduit operation, spurring talk that the unit's 21-member staff will soon shift somewhere else.

The Frankfurt bank made the call to shutter the New York-based division last week. In the process, it implemented a 3-year unwinding plan for the team's only conduit, the $2.7 billion Autobahn Funding.

Sources at DZ said several other institutions have already inquired about picking up the group's employees to start a new conduit operation or join an existing one. The talk is that the individuals could have a new home by the end of September, but they will remain involved with DZ until Autobahn finishes unwinding.

DZ's conduit staff is run by Patrick Preece and lieutenants Dan Marino, Sandeep Srinath and Chris Tucker.

The reasons for shuttering the operation weren't tied to performance. Rather, the 1,400 constituent banks that make up DZ appear to have decided that the U.S. effort didn't benefit them as Germany-focused institutions.

The move came with little warning. Just a month ago, DZ was seeking a deal-surveillance specialist for Autobahn. It has now called off that search.

The plan doesn't affect DZ's other securitization businesses, including a conduit division it maintains in Europe.

Compared to many other conduits, Autobahn has fared well throughout the credit crunch - actually increasing its outstandings and its funding capacity. The multi-seller vehicle has been able to do so largely because it has avoided mortgages in favor of funding out-of-the-ordinary assets for clients, including railcar leases, structured settlements and franchise loans. A few months ago, it set up a funding facility for Medallion Financial, a New York company that writes loans to buyers of taxi medallions.

Preece took control of DZ's U.S. conduit operation in 2006, after former group head Richard Wisniewski jumped ship with four top staffers to join asset-management giant Fortress Investment. Wisniewski had been part of an original group of former ING staffers who signed on with a DZ predecessor in 1999 to start the company's securitization effort. Preece came on board the following year from McDonald Investments.

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