Deutsche and Fleet unveil $40 billion OTC deal

The deal was sparked by Fleet's sale of Fleet Mortgage Corporation unit to Washington Mutual in June. To facilitate liquidation of a large derivatives portfolio, Fleet said it developed a strategy to convert derivatives that were hedging a mortgage-servicing portfolio into useful balance sheet hedges.

Deutsche Bank said it provided Fleet with a portfolio of swaps, options and other interest rate hedging tools that would help protect Fleet against the adverse impact of changes in short-term US interest rates on net interest income.

Fleet added that the restructured hedging arrangements had already helped it weather one of the most severe interest rate declines in recent US history. Yesterday the Federal Reserve cut the fed funds rate by a further 25 basis points to 1.75%, marking the eleventh rate cut this year.

"Our ability to achieve superior execution in so large and complex a transaction is a testament to our commitment to provide clients with innovative risk management solutions, and to the continued growth of our franchise in North America," said Anshu Jain, head of Deutsche’s global markets business.

"Our innovative approach to a difficult challenge enabled Fleet to reduce execution costs related to the Fleet Mortgage sale while providing interest rate protection for Fleet's balance sheet," said Doug Jacobs, treasurer of FleetBoston Financial. "The ability to do this discreetly using a single counterparty was a strong consideration when developing a strategy to accomplish our goals."

FleetBoston Financial is the seventh-largest financial holding company in the US, with assets exceeding $200 billion.

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