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Global financing 2002: A flight to complexity

Credit markets have contracted dramatically in recent months and all but the safest borrowers, which have benefited from a flight to quality, have had to pay a high price for funds. On the buy side investors want assurances that they will be protected from risk. The banks that have performed best in this year’s capital-raising poll are therefore those that have come furthest in developing complex products that can save money for borrowers and enable lenders to hedge effectively.

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Capital raising
Domestic markets

Over the past few months, banks' capital-raising capabilities have been tested to the limit. Last year, buoyant debt markets compensated for comatose equities. But in 2002 shocks from such collapses as Enron and WorldCom have soured sentiment in credit markets as well. At the same time M&A-related finance from such sectors as telecoms has dried up, as dangerously leveraged operators find themselves shut out of the market. Risk management has assumed a central place in the services that clients are demanding.

Investors want to limit their losses, while corporates have to control the dangerous exposures that have become apparent this year. Alastair Borthwick, head of the portfolio credit business at Goldman Sachs, says: "You don't even need to have owned an Enron or a WorldCom - the fact that they have collapsed very rapidly changes the relative importance of credit risk management.

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