WTC-hit derivatives houses maintain ratings

International rating agency Moody’s has confirmed the ratings on five derivatives firms, following initial concern that the houses, all located in or near the World Trade Center, would be adversely affected by the terrorist attacks of 11 September.

Companies were faced with the daunting task of relocating their physical operations and starting business anew while reassuring their client base that they were open for business and able to trade. “This was, obviously, an extraordinary test of these companies' disaster preparedness plans as well as the flexibility and determination of their management and employees," said Moody's.

Five derivative product companies (DPCs) had at least part of their operations in or near the World Trade Center: Lehman Brothers Financial Products; Lehman Brothers Derivative Products; Nomura Derivative Products International; Salomon Swapco and Merrill Lynch Derivative Products.

Moody's said it has had extensive discussions with the managers of all five DPCs regarding their reaction to and recovery from the World Trade Center disaster. Topics covered included the status of trades and portfolios in the days following the disaster, and the outlook for the proper functioning of their companies in the near future. Some temporary problems common to most of the DPCs: difficulty getting marks for certain types of trades, lack of liquidity in the markets and difficulty re-establishing review by external auditors.

"A couple of the DPCs had trouble tracking the status of their collateral portfolios because their custodian was located near the World Trade Center and the custodian's disaster recovery plans were inadequate to get it up and running in the days after the disaster. Overall, however, the DPCs did a remarkable job of recovering quickly from the disaster, and we expect them to remain fully functional and ready for business,” said Moody’s, which confirmed the Aaa ratings for each of the five named DPCs.

Moody’s also noted that those DPCs with operations housed well away from the site of the disaster also faced illiquid markets, but did not suffer any setbacks that could call into question their creditworthiness.