Quotes of the month
"Corporates that issue hybrids get part equity treatment which enables their senior bonds to get a higher rating or for their rating to be protected. But another way of looking at it is that the corporate now has more debt so the probability of default is higher. This is a ratings and rules arbitrage. If you are going to play in this market you had better understand the motivations behind that arbitrage"
Richard Ryan, manager of the M&G Alpha Opportunities Fund at M&G Investments, questions whether hybrids are genuine debt at all (see Is the flowering corporate market as attractive as it seems? )
"It really brings home the influence central banks are having on the debt capital markets when you see the sheer amount they’re set to buy before institutional investors even get a look in. These drivers are why you see a diverse range of issuers like Diageo achieving record low coupons, and why an emerging market issuer like KazMuniGas is able to successfully raise $2 billion of 30-year debt at 5 ¾%"
Mark Lewellen, head of DCM Emea at Barclays, says given the wall of central bank liquidity he doesn’t expect booming DCM activity to slow anytime soon
"While regulation concerning our clients (as well as ourselves) can be broken down into global measures such as Basle III, semi-global measures such as Vickers or Volcker, and local or regional measures such as Sepa, Dodd-Frank and Fatca, they all result in three outcomes. More investment, more effort and less profit"
Marcus Sehr, global head of cash management FI product at Deutsche Bank simply explains the impact of the regulatory onslaught on cash management for FIs
"The US is the largest revenue pool in the world, with the most established capital markets, the most liquidity and the broadest and deepest base of institutional investors. So if you are any type of financial institution serving institutional investors you need to give them access to US product, and that means you have to be here"
James Malick, a partner at Boston Consulting Group (BCG), neatly describes why the US market is so vitally important for foreign banks