Morgan Stanley Fixed Income Internship Presentation

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  • 1. Fixed Income Division Charles Naut July 30 th , 2008
  • 2. 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
  • 3. 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
  • 4. 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
  • 5. 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
  • 6. 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)
  • 7. Tranches
  • 8. 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
  • 9. The End Thank You