It's 2006, and New York investment bank Donlan & Co. has designed Minerve, an $800 million CDO with more than 100 underlying subprime mortgages. Minerve was created for a hedge fund client who is bearish on the residential mortgage market and who plans to buy derivatives through Donlan to short the CDO. James Ruby, Donlan's chief executive, must now decide whether to approve Minerve's launch - a move that could reap the firm millions of dollars in the short term and help establish the bank as a player in the burgeoning CDO market. But are the risks too great? Should Ruby ask for changes in the transaction? In this case, students analyze the options as Ruby weighs his own reservations and considers advice from the firm's head of fixed income sales, its chief risk officer, and its general counsel.

Case id: 110301