Morgan Stanley Fixed Income Internship Presentation

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Information about Morgan Stanley Fixed Income Internship Presentation
Finance

Published on February 12, 2009

Author: cnaut

Source: slideshare.net

Fixed Income Division Charles Naut July 30 th , 2008

Fixed Income Differs from variable-income security (ex: common stock) Yields a fixed return Generally lower volatility than variable-income security Types of fixed income: Corporate Bonds (debt) – interest/coupon Preferred Stock – dividends Pensions – annuity payment

Differs from variable-income security (ex: common stock)

Yields a fixed return

Generally lower volatility than variable-income security

Types of fixed income:

Corporate Bonds (debt) – interest/coupon

Preferred Stock – dividends

Pensions – annuity payment

Asset-Backed Securities (ABS) Debt Security Assets or cash flow from assets are securitized (pooled and repackaged) Sell bonds backed by the pool of assets that are securitized Diversified pool allows for risk reduction Examples of Assets: Auto Loans Student loans Credit card payments Mortgage loans

Debt Security

Assets or cash flow from assets are securitized (pooled and repackaged)

Sell bonds backed by the pool of assets that are securitized

Diversified pool allows for risk reduction

Examples of Assets:

Auto Loans

Student loans

Credit card payments

Mortgage loans

Mortgage-Backed Securities (MBS) Commercial Mortgage-Backed Securities (CMBS) and Residential Mortgage-Backed Securities (RMBS) Types of mortgages: Prime Jumbo Alt-A Subprime (BC Loans) Risks: Interest Rate Prepayment/Curtailment Credit Volatility Payment Options: Fixed Rate Interest Only (IO) Adjustable Rate Mortgage (ARM) Hybrid ARM Option ARM Balloon

Commercial Mortgage-Backed Securities (CMBS) and Residential Mortgage-Backed Securities (RMBS)

Types of mortgages:

Prime

Jumbo

Alt-A

Subprime (BC Loans)

Risks:

Interest Rate

Prepayment/Curtailment

Credit

Volatility

Payment Options:

Fixed Rate

Interest Only (IO)

Adjustable Rate Mortgage (ARM)

Hybrid ARM

Option ARM

Balloon

Fixed Income Division (FID) Manages risk Trades securities Structures and executes transactions Desks: Commercial Paper Trading Corporate Derivatives Listed Futures and Options Securitized Products Group Financing Generalist Sales U.S. Government Agency Counterparty Portfolio Management Debt Capital Markets Commodities Emerging Markets Research Corporate Bond Desk

Manages risk

Trades securities

Structures and executes transactions

Desks:

Commercial Paper Trading

Corporate Derivatives

Listed Futures and Options

Securitized Products Group

Financing

Generalist Sales

U.S. Government Agency

Counterparty Portfolio Management

Debt Capital Markets

Commodities

Emerging Markets Research

Corporate Bond Desk

Securitized Product Group (SPG) Desk of FID – Brings together FID and Investment Banking Division (IBD) Securitizes assets and structures transactions to create fixed income products Steps taken: Create trust or Special Purpose Vehicle (SPV) Buy up loans Sell loans to SPV Hold loans and collect interest from payments before packaging Get ratings for loans Divide loans into tranches and package them into bonds Sell bonds to investors SPV pays investors from the interest collected on the loans Make money on the residual (over-collateralization and money not paid to bonds)

Desk of FID – Brings together FID and Investment Banking Division (IBD)

Securitizes assets and structures transactions to create fixed income products

Steps taken:

Create trust or Special Purpose Vehicle (SPV)

Buy up loans

Sell loans to SPV

Hold loans and collect interest from payments before packaging

Get ratings for loans

Divide loans into tranches and package them into bonds

Sell bonds to investors

SPV pays investors from the interest collected on the loans

Make money on the residual (over-collateralization and money not paid to bonds)

Tranches

Desk Strategists Quantitative Analysis Deal with risk and PNL (Profit and Loss) Devise strategies Partner with traders and salespeople Manage Practice Areas/Information Technology (IT) Create tools Write software Complete commissioned projects

Quantitative Analysis

Deal with risk and PNL (Profit and Loss)

Devise strategies

Partner with traders and salespeople

Manage Practice Areas/Information Technology (IT)

Create tools

Write software

Complete commissioned projects

The End Thank You

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