[ by Melanie Gretchen ]

RBC Capital Markets is moving in on Citigroup's territory.

This month, the Canadian investment bank has hired Allen Fu from Citi to run the bank's new business in collateralized debt obligation (CLO) trading, according to two people with knowledge of the hire.  Surely, the bank's climb to the 10th most-active underwriter of leveraged loans in the U.S. this year, according to Bloomberg, can't be good news to Citi, either.

At Citigroup, Mr. Fu traded CDOs, backed by speculative-grade loans and bonds, said the people, who asked not to be identified because the hire hasn’t been announced publicly.  At his new firm, he will be based in New York, where he will report to Mike Meyer, global head of credit at the investment-banking arm of Royal Bank of Canada, the people said.  Mr. Fu joins Sean Peters who was also brought over from Citigroup last year, to build out its credit trading group as it combined its new-issue and secondary loan sales teams.

What else RBC has in its favor, according to Bloomberg:

• the market for funds backed by leveraged loans more than doubled since 2011
• there have been $31.5 billion of CLOs backed by widely syndicated loans arranged this year up from $11.7 billion in 2011 (compared to the height of the market in 2007, when $91.1 billion of the funds were sold, according to Morgan Stanley)
• loan issuance increased 48% for the same time period in 2010, Bloomberg data show.  CLOs could help drive demand for new loans, which fund leveraged buyouts and acquisitions.
• there have been $412.9 billion of leveraged loans, those rated below BBB by Standard & Poor’s and less than Baa3 at Moody’s Investors Service, raised this year

Going forward, RBC will look to trade across the CLO capital structure, from the riskiest portion, or so-called equity piece, to the highest-rated slice, the AAA debt, the people said.

For further details, go to [Bloomberg, 10/5/12].