“Tom was the Henry Ford of derivatives,”

[Joanne98]

April 24 (Bloomberg) -- As the sun streamed through the glass ceiling of London’s 40-story “Gherkin” tower in May 2007, Thomas Jasper raised his champagne glass.

Almost 25 years after the former Salomon Brothers Inc. banker transformed the derivatives market into a trillion-dollar industry, his latest venture, Primus Guaranty Ltd., was poised to make unprecedented profits.

“To wider spreads,” Jasper, Primus’s chief executive officer, said as he hoisted his glass to the crowd in the bar, predicting his firm could increase prices for the credit-default swaps it sold to banks protecting corporate debt as investors became nervous over growing losses on subprime mortgages.

Primus shares have fallen 82 percent since that evening. After the failure of Bear Stearns Cos. in March 2008, the world’s largest banks refused to buy protection from the Bermuda-based firm, which used leverage of more than 30 times its available capital to guarantee $24.3 billion of debt.

The collapse of institutions from Lehman Brothers Holdings Inc. to Icelandic banks has left Jasper fighting to conserve cash and defending the industry he helped create. Regulators have blamed bets made with credit-default swaps for contributing to $1.3 trillion of losses and writedowns at the world’s largest financial companies.

The credit swaps market isn’t the cause of the meltdown, Jasper, 60, said in an interview in his Midtown Manhattan office, on the 23rd floor of the building that also houses the derivative-industry association he co-founded.

“The issues that you had, that we’re all living with right now, are issues of bad underwriting and probably a regulatory framework that couldn’t keep track of where the risk was,” he said.

Derivatives Pioneer

Primus is now at the mercy of a market that Jasper laid the foundation for in the mid-1980s by turning interest-rate swap transactions that once took days to negotiate into a standard contract.

Debt traders used these as the template for credit-default swaps, where insurance companies, hedge funds and banks used leverage to guarantee at least $2.5 trillion in debt, according to data from the Depository Trust & Clearing Corp. in New York, which runs a central registry that captures most trading.

“Tom was the Henry Ford of derivatives,” said Richard Grand-Jean, 66, former managing director of international capital markets at Salomon and now New York-based principal of alternative-investment firm Hall Capital Partners LLC. “He brought mass production and uniform standards to the market.”

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