Canadian Imperial Bank of Commerce, one of the largest banks in North America and a leading municipal credit enhancer, said last week that it plans a major expansion of its derivatives department.

The bank snared five derivatives professionals from Lehman Brothers and plans to develop a global derivative business, bank officials said last week.

Michael Rulle, head of Lehman's equity derivatives group, will take charge of the bank's existing derivatives group, CIBC/Woody Gundy Inc.

Joining Rulle are Bruce Berger, Frank Gelardin, Eric Claus, and Jeff Seltzer. Berger will head trading, Gelardin will oversee marketing and structuring, Claus will head transaction development and Seltzer will be responsible for legal and credit structuring as well as regulatory matters.

Lehman's equity derivatives effort will be taken over on an interim basis by Donald Crooks, managing director and head of over-the-counter trading at Lehman, and Gene Abraham, managing director and head of equity sales.

The announcement sparked speculation that Canadian Imperial will eventually offer tax-exempt derivative products. Although Rulle was not working in fixed-income derivatives at Lehman, he did head the firm's initial push in that area until July 1992, when Craig Schiffer took over interest rate derivatives.

Rulle pursued a niche strategy at Lehman in the early 1990s, looking for profitable market sectors into which the firm could expand. That led Rulle to hire a municipal swap professional in 1991, for example.

Then again, municipal derivatives have been in decline this year. "This may not be the best time to get into munis," one professional at another firm with time on his hands said.

A spokeswoman for Canadian Imperial said that the new team "has not decided what products will be offered yet. Their first task will be setting up the infrastructure."

Although the bank has been active in Canadian dollar-denominated products, the new push will encompass products denominated in U.S. dollars and other currencies, along with equity market structures.

The bank will add 50 to 60 people in derivatives trading, marketing, and operations staff, the spokeswoman said.

At the other end of the spectrum, AMBAC Indemnity Corp. is said to be days away from announcing a swaps subsidiary. The subsidiary will offer swaps to municipal issuers, possibly including long-dated products with accompanying liquidity support, sources familiar with the firm said.

Secondary Market Action

The new issues market was again quiet over the past week. A couple of new deals were rated in the secondary market during the week of May 23, according to Moody's Investors Service.

A $36.4 million block of bonds issued by the Washington Public Power Supply System nuclear project 2 was structured as puttable tax-exempt floaters and inverse floaters by J.P. Morgan & Co. Morgan Guaranty Trust Co. of New York provided liquidity support.

A $7.7 million block of limited obligation first mortgage revenue bonds issued by the Frankenmouth Economic Development Corp. was turned into custody receipts with liquidiy support provided by Wachovia Bank of Georgia.

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