The 2007 All-America Fixed-Income Research Team

As the implosion of the subprime mortgage market spread unexpectedly last month to wider credit markets, Laurie Goodman, global co-head of fixed-income research for UBS, hastily assembled a conference titled "Sifting Through the Rubble." The New York meeting attracted 120 investors, with 473 more listening via telephone. Her focus then -- and for the foreseeable future -- has been to help clients figure out "how to tell the good investments from the bad," she says. That is an issue Goodman has been discussing with greater urgency since November, when UBS's 11-member structured-products research squad started sounding the alarm about an impending crisis in the U.S. housing market. Few investors listened. They are all listening now.

JPMorgan's clients are listening too. Several months ago Christopher Flanagan, the firm's director of global structured-finance research, initiated a series of conference calls, with the number of participants ranging from several hundred (for calls relating to discussions of asset-backed securities) all the way up to 3,000 (for a call featuring the firm's equity and credit strategists). "For a lot of people, this crisis came out of nowhere," Flanagan says, adding that his firm opted to use conference calls, with transcripts of the discussion posted on JPMorgan's research portal, because they are an efficient way of communicating with a wide range of clients in a very short time but still allow for individual attention to particular clients during question-and-answer sessions.

Fixed-income investors require a lot of individual attention and hand-holding these days, amid the continued fallout from the subprime crisis. According to Ravi Mattu, global head of fixed-income and equity research at Lehman Brothers, "The last few weeks makes the client model even more important." And more challenging. Many firms that refrained from expanding their research departments even as demand for fixed-income investments, notably credit derivatives, soared now find themselves scrambling to assuage clients. Lehman directed its analysts to spend more time on the phone with targeted clients, particularly hedge fund managers, and to keep their reports short, sweet and to the point, Mattu says.

That approach is what investors want: For an eighth consecutive year, Lehman tops Institutional Investor's All-America Fixed-Income Research Team. The firm captures 42 total team positions, eight more than its nearest competitor, JPMorgan, which returns in second place. Banc of America Securities jumps two places to finish in third, with 24 total positions. Falling one notch to fourth is Bear, Stearns & Co., one of the firms hit earliest and hardest by the meltdown; the bank pledged $3.2 billion in June to bail out two of its subprime hedge funds, only to see the funds collapse the following month, prompting the first of what may be many lawsuits against banks involved in the subprime space. Credit Suisse and UBS tie for fifth place, with 16 positions apiece. To determine the winners, II surveyed 1,425 portfolio managers and buy-side analysts from more than 480 firms managing an estimated $8.5 trillion in U.S. fixed-income assets. Polling concluded in June.

Given limited resources, credit markets in turmoil and investors clamoring for up-to-the-minute information, fixed-income analysts have rarely experienced a more difficult environment. "Everybody has more work," says Margaret Cannella, global head of credit research and U.S. corporate strategy at JPMorgan, which has 70 fixed-income researchers. "Analysts have less time to deep think, so there is more need for seasoned analysts with more experience. You have to be relevant every single day." Maintenance research went by the wayside a long time ago, and analysts have had to pare their written output even further to serve the growing number and wider variety of clients. "There's an incredibly increased emphasis on making sure our analysts are commercial," says Cannella. "It's a massive shift from the analyst's job three years ago."

Lehman's Mattu agrees that published research in the fixed-income arena has changed. "The time for long-shelf-life strategic research is by and large gone," he says. Instead, firms are relying more heavily on technology and the Internet to disseminate research swiftly to a wide audience. LehmanLive, which investors rate the best Web-based Analytical Tool, offers not only research reports but also video feeds of conference calls and analyst meetings, as well as benchmarking tools.

BofA's product Lighthouse also provides Web-based portfolio analytics and data analyses. One feature introduced last October, a credit option-adjusted spread model, allows investors to measure the amount of risk they would assume by adding collateralized debt obligations, which can be backed by structured products with subprime exposure, to their portfolios. In February the firm posted on its research portal a report by Jeffrey Rosenberg -- who leads BofA's ten-member Investment-Grade Strategy team from third place to first -- alerting investors to looming danger: "Continued erosion in the subprime market and a lack of spread widening in corporate-credit-related issues heightens our concerns about the potential for subprime problems to spread to the corporate credit market," wrote Rosenberg, the firm's head of credit strategy research, advising investors to be more bearish on the credit market.

Ironically, the seeds of the current derivatives-fueled crisis were sown in an earlier period of turmoil when the use of derivatives helped avert a market meltdown. Two years ago, when Standard & Poor's downgraded Ford Motor Co.'s and General Motors Corp.'s credit to junk status, analysts and market observers predicted panic-selling as investors rushed to rid themselves of $450 billion in corporate bonds. That did not happen, because the derivatives market had anticipated the S&P downgrade and priced credit default swaps accordingly. When investors saw how effectively derivatives could be used as a hedge against risk, demand skyrocketed. Investment banks began working double-time to create new and imaginative derivatives products in response to investors' expectations.

UBS's Goodman, who leads the Mortgage-Backed-Securities Strategy team and co-leads the first-place team in four MBS sectors (and the second-place team in a fifth), says her firm responded to the changing fixed-income marketplace not by adding analysts to its 55-strong team but by shifting personnel toward high-growth areas such as securitized products, structured credit, emerging markets and leveraged finance/high yield. To do so, the firm downsized its high-grade-credit staff. "In a resource-constrained market, you're forced to make choices," she says.

The flurry of new fixed-income products has broadened the sell-sider's role as educator. Lev Dynkin, who leads Lehman's 14-member Quantitative Portfolio team to first place for a second consecutive year, uses real-life client situations as the basis for research that is now finding a wider audience. "Often the answer [to one client's request] is of interest to others, and if it's okay with the original client, we'll publish the results," Dynkin says. Last fall these reports were compiled in a book, Quantitative Management of Bond Portfolios, that is being used by investors and in graduate-level finance classes, he says.

In turbulent markets such as these, high-quality research and good recommendations separate the top-tier research firms from the rest of the pack. "It's a great time for credit research," says JPMorgan's Cannella. "Not a good time for the market, but a great time for credit research."

THE MORTGAGE-BACKED OUTLOOK: LAURIE GOODMAN, UBS

Dark clouds continue to hover over the fixed-income market in general and the subprime mortgage market in particular, but Laurie Goodman sees the silver lining. Goodman, global co-head of fixed-income research for UBS, leader of the top-ranked Mortgage-Backed-Securities Strategy squad on the 2007 All-America Fixed-Income Research Team and co-leader of the first-place teams in four MBS sectors (and the second-place team in a fifth), says the Federal Reserve Board's half-percentage-point reduction in the discount rate last month gave investors confidence that there was support for these markets. That changed "the psychology of the crisis," she says.

Also helping was Bank of America Corp.'s $2 billion infusion last month into beleaguered subprime lender Countrywide Financial Corp., the U.S.'s biggest mortgage lender. BofA's investment brought liquidity back to the MBS market, she explains, and the crisis began to wane.

"MBS got more beaten up than was justified by the fundamentals," says Goodman, who believes the Fed will further help the markets by cutting the federal funds rate at its meeting this month. Such a move would bring even more liquidity to the market, she says, although the full impact of the meltdown has yet to be felt.

She expects early 2008 to bring a slowdown in the real economy, with falling home prices and rising foreclosure rates, especially for subprime mortgages, which proliferated in 2006. "When the dust settles, the mortgage market will look quite different," Goodman wrote in an August 21 report. Among her predictions: Agencies will become more prominent, the subprime industry will be smaller, and consolidation among mortgage originators will be significant. "People know this is going to go on for quite some time," she says.

Still, she is already seeing encouraging signs. Late last month, as the markets appeared to be stabilizing, Goodman says clients were looking for buying opportunities. She recommends a balance of both ends of the capital structure: on the one side the senior AAA-rated nonagency pass-throughs without a credit dimension; on the other distressed securities that are likely to pay but are priced as if they aren't.

Long experience has helped Goodman, 51, gain perspective on the market's behavior. She began her career as a senior economist with the Federal Reserve Bank of New York, spent three years as a mortgage portfolio manager at Eastbridge Capital and held senior fixed-income research positions at Citi; Goldman, Sachs & Co.; and Merrill Lynch before joining PaineWebber in 1993, seven years before its merger with UBS.

THE ASSET-BACKED OUTLOOK: CHRISTOPHER FLANAGAN, JPMORGAN

Christopher Flanagan, head of global structured-finance research for JPMorgan, saw danger looming in the subprime mortgage market a year and a half ago, but even now he wonders if the government comprehends the crisis. "It's still not perfectly clear if the Fed understands the magnitude of what's going on," says Flanagan, 50, who leads or co-leads three top-ranked Asset-Backed Securities squads (and one in second place) on the 2007 All-America Fixed-Income Research Team. "The market is looking for more than just the early August easing," he says, referring to the Federal Reserve Board's half-percentage-point cut in the discount rate last month.

In May 2006 Flanagan published a report warning investors that a downturn in the housing market was on its way. "There is a problem that will take a long time to unfold," he wrote. Last fall, while many other analysts were talking about the markets being awash in liquidity, Flanagan was telling clients to expect big moves in the spreads of the benchmark subprime mortgage ABX indexes. He urged investors to go short and stay that way.

In early January the ABX 07-1 BBB­, the index that tracks subprime mortgage loans made in the second half of last year, stood at 98.35 points; by mid-August it had plunged to 33.53. Investors that followed Flanagan's advice have made a bundle, and there may be more to come: He expects the index to trade down to the mid-teens.

In February and March, Flanagan, who has been a fixed-income researcher for more than 20 years, began to draw parallels between conditions in the ABS and collateralized-debt obligations markets. He concluded that what was happening in the former would soon be happening in the latter, and he urged investors to short CDOs, as well.

Last month, in a report titled "After the Fall: Value in ABS, ABX and CDOs," Flanagan expanded on his position. Although he remains short on BBB­ debt, having concluded that there is little the Fed can do to save the fundamentals of the lower part of the capital structure, he turned bullish on the more senior parts of the ABS markets, specifically the AAA and AA tranches, including autos and credit cards. "We've seen massive spread widening, and now they're oversold," he wrote. (The spreads have since begun to tighten.) "This is once-in-a-lifetime stuff for the bond market."

THE OUTSTANDING ANALYSTS OF THE YEAR

INVESTMENT GRADE

BANKS

Matthew Burnell

Wachovia

SECOND TEAM

Ian Jaffe Bear Stearns

THIRD TEAM

Jonathan Glionna Lehman

RUNNER-UP

Kabir Caprihan JPMorgan

BASIC INDUSTRIES

James Dunn

Wachovia

SECOND TEAM

Gregory Ransom BofA

THIRD TEAM

Keith Wiley Goldman Sachs

CONSUMER PRODUCTS

Todd Duvick

BofA

SECOND TEAM

Eric Miller Lehman

THIRD TEAM

Virginia Chambless JPMorgan

ELECTRIC UTILITIES

Faith Klaus

BofA

SECOND TEAM

Raymond Leung Bear Stearns

THIRD TEAM

Peter Quinn Goldman Sachs

RUNNER-UP

Susan Voorhees JPMorgan

ENERGY

Ted Izatt

Bear Stearns

SECOND TEAM

Dennis Coleman BofA

THIRD TEAM

Harry Mateer Lehman

RUNNER-UP

Vivek Pal UBS

HEALTH CARE

David Peterson

BofA

SECOND TEAM

Arun Kumar JPMorgan

THIRD TEAM

Stanton Neilson Barclays

INSURANCE

Thomas Walsh

Lehman

SECOND TEAM

Gail Golightly Wachovia

THIRD TEAM

David Havens UBS

RUNNERS-UP

Michael Barry BofA; Seth Glasser Barclays; Arun Kumar JPMorgan

MANUFACTURING

Brian Jacoby

Goldman Sachs

SECOND TEAM

Dan Ilany Bear Stearns

THIRD TEAM

Douglas Karson BofA

MEDIA & ENTERTAINMENT

Scott Shiffman

Lehman

SECOND TEAM

Douglas Colandrea Bear Stearns

THIRD TEAM

Scott Marchakitus Goldman Sachs

RUNNER-UP

Robert Schiffman Credit Suisse

NONBANK FINANCIALS

Jonathan Glionna

Lehman

SECOND TEAM

John Guarnera BofA

THIRD TEAM

Matthew Burnell Wachovia

RUNNERS-UP

Van Hesser HSBC; Ian Jaffe Bear Stearns

REAL ESTATE INVESTMENT TRUSTS

Daniel Sullivan

Wachovia

SECOND TEAM

Mark Streeter JPMorgan

THIRD TEAM

Susan Berliner Bear Stearns

RUNNER-UP

Christopher Brown BofA

RETAILING

Eric Miller

Lehman

SECOND TEAM

Virginia Chambless JPMorgan

THIRD TEAM

Frank Henson Bear Stearns

RUNNER-UP

Christopher Brown BofA

TECHNOLOGY

Gregory Chwatko

Goldman Sachs

SECOND TEAM

Dan Ilany Bear Stearns

THIRD TEAM

Scott Shiffman Lehman

TELECOMMUNICATIONS SERVICES

Scott Shiffman

Lehman

SECOND TEAM

Scott Marchakitus Goldman Sachs

THIRD TEAM

Douglas Colandrea Bear Stearns

HIGH YIELD

AUTOS & AUTO PARTS

Jeffrey Skoglund

UBS

SECOND TEAM

Eric Selle JPMorgan

THIRD TEAM

Douglas Karson BofA

RUNNER-UP

Brian Jacoby Goldman Sachs

BROADCASTING & PUBLISHING

Stephen Weiss

BofA

SECOND TEAM

Andrew Finkelstein Lehman

THIRD TEAM

Robert Kricheff Credit Suisse

RUNNER-UP

Avi Steiner KBC

BUILDING

Lawrence Taylor

Credit Suisse

SECOND TEAM

Lee Brading Wachovia

THIRD TEAM

Andrew Brausa BofA

RUNNER-UP

Susan Berliner Bear Stearns

CABLE & SATELLITE

Stephen Weiss

BofA

SECOND TEAM

Michael Pace JPMorgan

THIRD TEAM

Robert Kricheff Credit Suisse

CHEMICALS

David Troyer

Credit Suisse

SECOND TEAM

William Hoffmann UBS

THIRD TEAM

Michael Salshutz Lehman

RUNNER-UP

Roger Spitz Merrill Lynch

CONSUMER PRODUCTS

Reza Vahabzadeh

Lehman

SECOND TEAM

Carla Casella JPMorgan

THIRD TEAM

Reade Kem Merrill Lynch

ELECTRIC UTILITIES

David Silverstein

Merrill Lynch

SECOND TEAM

Peter Quinn Goldman Sachs

THIRD TEAM

Susan Voorhees JPMorgan

ENERGY

Gary Stromberg

Lehman

SECOND TEAM

Adam Leight Credit Suisse

THIRD TEAM

Kelly Krenger BofA

FOOD & BEVERAGES

Reza Vahabzadeh

Lehman

SECOND TEAM

Bryan Hunt Wachovia

THIRD TEAM

Karen Eltrich Goldman Sachs

RUNNER-UP

Zafar Nazim JPMorgan

GAMING & LODGING

David Hargreaves

KBC

SECOND TEAM

James Kayler BofA

THIRD TEAM

Jane Pedreira Lehman

RUNNER-UP

John Maxwell Merrill Lynch

HEALTH CARE

Larry Bland

BofA

SECOND TEAM

Michael Scarangella Merrill Lynch

THIRD TEAM

Henry Reukauf Deutsche

RUNNER-UP

Scott Schimpf Lehman

MANUFACTURING/GENERAL INDUSTRIALS

Sarah Thompson

Lehman

SECOND TEAM

Manish Somaiya BofA

THIRD TEAM

Thomas Klamka Credit Suisse

METALS & MINING

Bruce Klein

Credit Suisse

SECOND TEAM

Justine Fisher Goldman Sachs

THIRD TEAM

Brett Levy Jefferies

RUNNER-UP

Kevin Cohen BofA

PAPER & FOREST PRODUCTS

Bruce Klein

Credit Suisse

SECOND TEAM

Joseph Stivaletti Goldman Sachs

THIRD TEAM

William Hoffmann UBS

RUNNER-UP

Kevin Cohen BofA

RETAILING

Susan Jansen

Lehman

SECOND TEAM

Carla Casella JPMorgan

THIRD TEAM

Karen Eltrich Goldman Sachs

RUNNERS-UP

Christina Boni Credit Suisse; M. Grant Jordan Wachovia; Reade Kem Merrill Lynch

SERVICES

Lawrence Taylor

Credit Suisse

SECOND TEAM

Manish Somaiya BofA

THIRD TEAM

Sarah Thompson Lehman

TECHNOLOGY

Eric Toubin

BofA

SECOND TEAM

Jeffrey Harlib Lehman

THIRD TEAM

Sundar Varadarajan Deutsche

RUNNER-UP

Robert Hopper UBS

TELECOMMUNICATIONS SERVICES

Patrick Dyson

Credit Suisse

SECOND TEAM

David Sharret Lehman

THIRD TEAM

Ana Goshko BofA

RUNNER-UP

Sandy Liang Bear Stearns

TRANSPORTATION

Mark Streeter

JPMorgan

SECOND TEAM

Justine Fisher Goldman Sachs

EMERGING MARKETS

EMERGING-MARKETS SOVEREIGNS & ECONOMICS

Joyce Chang, Luis Oganes & team

JPMorgan

STRUCTURED SECURITIES

ASSET-BACKED SECURITIES/PREPAYMENTS

Christopher Flanagan & team

JPMorgan

SECOND TEAM

Shumin Li, Thomas Zimmerman & team UBS

THIRD TEAM

Steven Bergantino, Dale Westhoff & team Bear Stearns

RUNNERS-UP

Rod Dubitsky, Jay Guo & team Credit Suisse; Dan Mingelgrin & team Lehman

ABS/REAL ESTATE

Christopher Flanagan, Edward Reardon & team

JPMorgan

SECOND TEAM

Rod Dubitsky & team Credit Suisse

THIRD TEAM

Akhil Mago & team Lehman

RUNNERS-UP

Gyan Sinha & team Bear Stearns; Rei Shinozuka, Thomas Zimmerman & team UBS

ABS/OTHER

Mary Kane, Rahul Parulekar & team

Citi

SECOND TEAM

Christopher Flanagan, Amy Sze & team JPMorgan

THIRD TEAM

Theresa O'Neill & team Merrill Lynch

RUNNER-UP

Rajat Bhu, Rod Dubitsky & team Credit Suisse

COLLATERALIZED DEBT OBLIGATIONS

Christopher Flanagan, Kedran Garrison & team

JPMorgan

SECOND TEAM

Claude Laberge, Akhil Mago & team Lehman

THIRD TEAM

Douglas Lucas & team UBS

COMMERCIAL MORTGAGE-BACKED SECURITIES

Darrell Wheeler & team

Citi

SECOND TEAM

Alan Todd & team JPMorgan

THIRD TEAM

Roger Lehman & team Merrill Lynch

RUNNERS-UP

Neil Barve & team Lehman; Lisa Pendergast & team RBS Greenwich

MORTGAGE-BACKED SECURITIES/ADJUSTABLE-RATE MORTGAGES

Laurie Goodman, Gregory Reiter & team

UBS

SECOND TEAM

Matthew Jozoff & team JPMorgan

THIRD TEAM

Desmond Macauley & team RBS Greenwich

RUNNERS-UP

Gyan Sinha & team Bear Stearns; Vikas Shilpiekandula & team Lehman

MBS/AGENCY PASS-THROUGHS

Laurie Goodman, Jeffrey Ho & team

UBS

SECOND TEAM

Matthew Jozoff & team JPMorgan

THIRD TEAM

Alexander Crawford & team RBS Greenwich

RUNNERS-UP

Steven Abrahams & team Bear Stearns; Prasanth Subramanian & team Lehman; Akiva Dickstein & team Merrill Lynch

MBS/AGENCY-STRUCTURED PRODUCTS

Laurie Goodman, Gregory Reiter & team

UBS

SECOND TEAM

Matthew Jozoff & team JPMorgan

THIRD TEAM

Steven Abrahams & team Bear Stearns

RUNNERS-UP

Srinivas Modukuri & team Lehman; Alexander Crawford, Pankaj Jha & team RBS Greenwich

MBS/NONAGENCY-STRUCTURED PRODUCTS

Laurie Goodman, Thomas Zimmerman & team

UBS

SECOND TEAM

Matthew Jozoff & team JPMorgan

THIRD TEAM

Vikas Shilpiekandula & team Lehman

RUNNER-UP

Satish Mansukhani & team Credit Suisse

MBS/PREPAYMENTS

V.S. Srinivasan, Dale Westhoff & team

Bear Stearns

SECOND TEAM

Laurie Goodman, Shumin Li & team UBS

THIRD TEAM

Matthew Jozoff, John Sim & team JPMorgan

RUNNER-UP

Lakhbir Hayre & team Citi

MUNICIPALS

GENERALIST

Peter DeGroot

Lehman

HEALTH CARE

Jerome Solomon

Bear Stearns

SECOND TEAM

Jody Madala First Albany

STRATEGY & ECONOMICS

BOND MARKET INDEXES

Nicholas Gendron & team

Lehman

SECOND TEAM

Philip Galdi & team Merrill Lynch

THIRD TEAM

Thomas Klaffky & team Citi

CREDIT DERIVATIVES

Ashish Shah & team

Lehman

SECOND TEAM

Eric Beinstein & team JPMorgan

THIRD TEAM

Sivan Mahadevan & team Morgan Stanley

ECONOMICS

Maury Harris, James O'Sullivan & team

UBS

SECOND TEAM

Ethan Harris & team Lehman

THIRD TEAM

Bruce Kasman & team JPMorgan

RUNNERS-UP

Barclays; John Ryding & team Bear Stearns; Jan Hatzius & team Goldman Sachs; Ed Hyman & team ISI; David Rosenberg & team Merrill Lynch; Stephen Stanley & team RBS Greenwich

FEDERAL AGENCY DEBT STRATEGY

Margaret Kerins & team

RBS Greenwich

SECOND TEAM

Priya Misra & team Lehman

GENERAL STRATEGY

John Malvey & team

Lehman

SECOND TEAM

Kenneth Hackel & team RBS Greenwich

THIRD TEAM

Barclays

RUNNERS-UP

Steven Abrahams & team Bear Stearns; Terrence Belton, Pavan Wadhwa & team JPMorgan

HIGH-YIELD STRATEGY

Peter Acciavatti & team

JPMorgan

SECOND TEAM

M. Christopher Garman & team Merrill Lynch

THIRD TEAM

Brian Arsenault & team Morgan Stanley

RUNNER-UP

Michael Anderson & team Lehman

INTEREST RATE DERIVATIVES

Terrence Belton, Srini Ramaswamy & team

JPMorgan

SECOND TEAM

Amitabh Arora, Ben Martens & team Lehman

THIRD TEAM

Jon Blumenfeld & team Bear Stearns

INVESTMENT-GRADE STRATEGY

Jeffrey Rosenberg & team

BofA

SECOND TEAM

Edward Marrinan & team JPMorgan

THIRD TEAM

Gregory Peters & team Morgan Stanley

RUNNER-UP

Ashish Shah & team Lehman

MBS STRATEGY

Laurie Goodman & team

UBS

SECOND TEAM

Matthew Jozoff & team JPMorgan

THIRD TEAM

Steven Abrahams, Dale Westhoff & team Bear Stearns

RUNNERS-UP

Srinivas Modukuri & team Lehman; Alexander Crawford & team RBS Greenwich

MUNICIPALS STRATEGY

Peter DeGroot & team

Lehman

SECOND TEAM

Philip Fischer & team Merrill Lynch

THIRD TEAM

George Friedlander & team Citi

RUNNER-UP

Yingchen Li & team JPMorgan

QUANTITATIVE PORTFOLIO

Lev Dynkin & team

Lehman

TECHNICAL ANALYSIS

Michael Krauss & team

JPMorgan

SECOND TEAM

Barclays

U.S. GOVERNMENTS STRATEGY

David Ader & team

RBS Greenwich

SECOND TEAM

Amitabh Arora & team Lehman