Credit Linked Notes... or on internal arbitrages

Credit-linked notes (CLNs) are simple and popular funded credit instruments. One of the their most interesting iterations is a note issued by a bank (rather than an SPV) with an overlaid CDS on a third company (or 'reference entity' in credit jargon).
How it works:
A bank (say BNP) issues a note on which it pays its own funding - 3 month Euribor + 'funding spread' - and sells protection (synthetically via a CDS) to another bank (say Morgan Stanley) on a reference entity (say the Kingdom of Spain); for selling such protection the bank receives the 'CDS spread' (say 200bps or 2 per cent - let's ignore the basis here).
The investor hands his money in at par (EUR 100) and receives quarterly payments of Euribor + 'funding spread' + 'CDS spread' less the P&L of the bank. Now the P&L of the bank would typically be something around 20% of the sum of the two spreads, so an investor receives 80% of it(besides the quarterly Euribor) which, at the time of writing (mid Nov 2010), would be not far from 300bps for a BPN issued CLN on Spain.
All seems fine and crystal clear, right? Well, no: the bank is actually paying a too higher spread (or, conversely, the note price is too low at par). The credit trading desk is simply arbitraging away the treasury department of his own bank.

There are two ways to see this:

1. First-to-default: This CLN is really a first-to-default structure; that means that the higher the correlation (between bank and ref. entity) the lower the spread payable (if correlation is equal to 100% then the spread that can be paid by the issuing bank is the wider between his own funding spread and that of the reference entity). Paying the sum of the two spreads (less P&L) is only possible by assuming an unrealistic low correlation (even if the 20% is not all P&L the 80% paid seems too high).
2. Collateral financing: the investor is exposed for 100 to the credit of the bank and for, again, 100 to the reference entity, in one word he is leveraged (and cannot lose more than 100). So who pays for the investor's financing?  That's the issuing bank that must post collateral against the credit protection sold; if the correlation between the bank and the reference entity in the CDS is positive this implies a negative gamma position: the bank must post collateral in case of the CDS spread widening when it is more costly to do it because of the positive correlation with its own funding spread - (and vice versa).

The issue here is that the credit trading desk is not charged these future financing costs of posting collateral... all collateral is assumed received/post at EONIA.

It seems to me that this is another case of traders arbitraging their own bank's shareholders. It is like booking illiquid securities as trading portfolio because the internal funding is the short term rate (EONIA).