Risk 's Derivatives and Risk Management Summit Europe 2006: Dealers may face new raft of CDO litigation

Banks and securities firms could be hit with a wave of new litigation as they are still not properly explaining to investors the full risks associated with collateralised debt obligation (CDO) investments, said speakers at Risk ’s Derivatives and Risk Management Europe conference in Monte Carlo today.

Widespread litigation is more likely to occur if a credit dislocation similar in scale to that witnessed last year takes place in the near future, as inexperienced investors could face large losses, panellists said.

Investments in CDOs have picked up of late as investors look for alternative ways to generate alpha amidst low interest rates and unstable market conditions – many are pension funds and individual investors that have only entered the market in the past 12 months.

JP Morgan last week