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CSFB Mortgage Trading Exec Out After Huge Hedge Losses

Matthew Ruppel left CSFB after mortgage group lost a reported $80 million to $100 million on certain mortgage trades

December 15, 2003


The former head of Credit Suisse First Boston's (CSFB) mortgage-trading division left the company amid huge losses just two weeks after he was forced to relinquish some control in a power-sharing shakeup.

According to published reports by Reuters, The Wall Street Journal and others, Matthew Ruppel left the international financial services and investment banking firm during the first week of December after CSFBs mortgage group lost a reported $80 million to $100 million on certain mortgage trades made during the second half of the year.

Ruppel, who had been with the firm since 1998, couldn't be reached and CSFB did not return calls to comment or issue any type of formal statement on his departure.

But in mid-November, CSFB reorganized its mortgage-backed securities unit, according to a report on BondWeek.com.

Ruppel was stripped of his duties as solely overseeing the mortgage-backed securities and was designated "co-head" of the group along with Andy Kimura, who is described as a "veteran CSFB mortgage trader."

BondWeek.com reported the change after obtaining an internal memo from Jim Healy and Jerry Wood, co-heads of fixed income at CSFB.

The memo cited "risk management challenges" as one of the reasons for the change and indicated Ruppel would oversee "conduit, including origination and operational issues, and new business" while Kimura was put in charge of trading and risk management.

But the report also said the changes came after CSFB booked a $50 million loss "in its high-profile whole loan collateralized mortgage obligation book from hedges of interest-only positions."

BondWeek.com reported that "some professionals outside the firm (speculated) the change in hierarchy is directly related to these losses."

The Wall Street Journal, reporting on Ruppel's departure, said CSFB had launched an internal investigation about a mortgage trade that lost at least $25 million in November.

CSFB brought in an outside law firm to investigate how the loss occurred and whether trading positions were property disclosed and monitored by supervisors, the journal reported.

In the wake of Ruppel's sudden departure CSFB has announced a reorganization of its asset-baked and residential- and commercial-mortgage-backed operations.

The new unit will be run by Kimura, Michael Marriott and Ben Aitkenhead, who will oversee risk management, sales and trading, according to Reuters.

CSFB had operated residential mortgage-backed securities, CMBS and asset-backed securities as separate units.

CSFB, a unit of Credit Suisse Group, had reported in November that third-quarter fixed income revenues had fallen 41% from the second quarter.

Bond markets were hurt by a big summer selloff while the mortgage-backed securities market was hit by heavy refinancing and volatile mortgage rates, Reuters reported.

"The mortgage business has never seen such a large volume of refinancing," David Hendler, bank and finance analyst at CreditSights, an independent New York research firm, told the news wire service.

"Some people who managed their risk based on historical events were not prepared. It's another example of how you can't drive forward by looking at the rear-view mirror," he said.

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Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]

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