Investment bankers, having spent a summer holiday filled with sun, sand and a vibrating Blackberry, are still adjusting to a market landscape which looks very different to the one they left behind.

Few participants remain unaffected by events which took place during the past few months. Jitters caused by the continued wave of defaults in the US subprime mortgage market have had a knockon affect on most areas of the industry. In respect to the global structured products market, the immediate impact was felt in the CDO market, particularly in relation to CDOs or CDO-squared transactions (CDOs investing in other CDO vehicles) which had been exposed to subprime loans originated in the US. Given the raft of downgrades of residential mortgage-backed securities, investors holding junior tranches in some of these structures face some serious losses, which have

led to high profile failures among hedge funds and other vehicles heavily exposed in this area.

Growing uncertainty as to which financial institutions are most exposed to these losses has led to what has been widely described as a ‘liquidity crunch’. It is only now however, with the release of upto-date financial results, can the actual exposure of these banks be judged.

The effect of the recent liquidity shortages has been particularly acute in the short-term debt (commercial paper) markets. This, in turn, has had an adverse impact on structures relying on continued issuance of commercial paper such as ABCP conduits, SIVs and SIV-lites.