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April 2001

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  • Freddie Mac and Fannie Mae, America's two largest agency debt issuers, have now implemented the latest steps in their voluntary six-point programme agreed with Congress last year to reassure clients and the public of their safety and soundness.
  • It may have been buried towards the back of a long report but it has certainly elbowed its way into the spotlight since. A call by Paul Myners, in his review of the UK's investment industry, to address how and why fund managers pay commissions to brokers has sparked a heated debate.
  • Turkey’s idiosyncratic form of financial engineering involved the creation of a web of corruption linking the governing elite, through the state banks, to its cronies. The private banks fed well off the massive government debt this generated. Then, in February, they hit the wall in a liquidity crisis that lopped more than 30% off the value of the Turkish lira.
  • The Emerging Market Creditors Association is becoming nervous because Ecuador included exit constraints in its exchange offer. Now they have been used successfully once, they may be used again elsewhere.
  • Turkish banks will have to roll over $6 billion in syndicated debt this year. Though first-tier banks will be able to roll over, albeit at higher interest rates, life will not be so easy for medium-sized and smaller banks.
  • The German Pfandbrief market, in particular the jumbo sector, has grown dramatically in recent years and assumed a larger and larger slice of European bond fund managers’ portfolios. But now many of the leading issuers face significant challenges in the underlying lending businesses that generate Pfandbrief collateral. The German mortgage banks are seeking non-traditional business opportunities, as well as starting to sort out their underperforming mortgage lending businesses. Volumes are likely to shrink.
  • Chile is reckoned to be the best organized country in Latin America, so no-one was expecting any surprises when Santiago was chosen to host the Inter-American Development Bank (IDB) annual meetings in March. It was expected that there would be lots of optimism about Mexico and its investment-grade credit rating, optimism too about the surprisingly smooth way in which the Peruvian elections seem to be panning out, and positive noises about a US soft landing and the way in which Argentina, with the help of the IMF, was attempting to extricate itself from economic stagnation.
  • The internet age is challenging one of the great modern myths of Hong Kong - that betting is not permitted in the territory. Indeed, something of a crisis is occurring because of the explosive growth of betting on the internet by Hong Kong residents. The government coffers are suffering, one of the oldest and most powerful groups in the city complains that it is losing up to $7 billion a year in revenues and cries of foul can be heard as far away as the local legislative council.
  • The marble floors are still in place at the EBRD’s office on London’s Bishopsgate, the grand pillars and glass still deck the waiting area and the presidential suite remains with its grand vistas. But little else at the EBRD remains of the Jacques Attali era. Since he launched the bank with such a grandiose vision 10 years ago, it has fallen on leaner times. The grand claims to transform entire economies have been replaced by the limited promises to clean up management practices in its designated area of interest in eastern and central Europe. The men now running the show are no longer Europe’s heavy hitters but technocrats bent as much on curbing internal costs as doing imaginative deals.
  • As the European credit market has grown in the past two years, banks have struggled to position themselves to capitalize on the opportunity. In a bid to win much more lucrative underwriting business than high-grade, frequent issuers ever offered, they have poured money into credit research, importing staff from the US, where credit analysis is a long-familiar concept, and plundering the rating agencies for talent. But the response from investors has been mixed. While sell-side credit analysts may offer a convenient shortcut to essential facts and figures about a company, fund managers are quick to highlight their lack of independence. In a volatile credit market, buyers of credit bonds are doing more of their own analysis in-house. Still, brokers insist that this doesn’t mean their role is under threat.
  • The markets’ goal of next-day settlement of equities and bonds will only be achieved if there’s full implementation of straight-through processing. The more volumes continue to increase, the more urgent this becomes. Yet two rival systems have not agreed on common standards and sceptics fear that implementing full STP and T+1 settlement will be a decade-long project for cross-border trading.
  • Economic and competitive pressures facing telecoms operators in Europe and internationally could, in turn, expose the equipment suppliers to heightened credit and legal risk.
  • For all the talk of US slowdowns, Argentine crises and prudent spending-policies, there was little evidence of belt-tightening at the annual meeting of the Inter-American Development Bank (IDB) in Santiago in March.
  • A small Andean nation proves that it is possible to successfully restructure a bond issue. And to a great extent, the success of the Ecuador exchange offer was a self-fulfilling prophecy.
  • Those central and eastern European countries that have pushed furthest and fastest with privatization have benefited from healthy government finances, restructuring and modernization of key industries and enhanced economic growth. That’s undeniable. But privatization remains ever politically contentious. Selling their banking systems to foreigners was hard to stomach, and now these countries are selling even more essential services, their energy generators and power distributors. If they can maintain the political will, at least governments will find buyers in these sectors, unlike in telecommunications.
  • Ruben Vardanian, president of Russia’s leading broker Troika Dialog, talks about the changing structure and behaviour of Russia’s companies and investment opportunities in them.
  • The huge growth in the number of European corporates of varying credit quality tapping the capital markets has led to massive demand for ratings. The ratings agencies are staffing up to meet this challenge. But there remains a question mark over the value of the service they provide, especially in high yield, the most credit-intensive area of all.
  • The international strategic investor has become, and will continue to be, the key figure in eastern European privatization. The most effective sales seem to be those that have involved transferring a substantial equity stake to a foreign company.
  • With south-east Asian economies recovering, governments are making cautious moves to restructure and expand their power industries to meet increased demand. None wants a California-style crisis. However, foreign investor interest is likely to be limited and financing must be provided by local debt and equity markets.
  • Amid the extreme volatility in financial markets around the world so far this year, one of the biggest surprises has been the strength of the US debt markets. It has been a roaring start to the year. In January over $70 billion of high-grade corporate paper of between two and 30 years' maturity was issued. Short-term interest rate cuts helped create a steeper yield curve, which historically has been good for corporate bonds.
  • On February 28, Indian finance minister Yashwant Sinha announced an annual budget that should have given a strong push to economic growth. Tax cuts, a sharp cut in interest rates and a raising of the ceiling on foreign portfolio investment in Indian companies should have given the stock markets the boost they badly needed.
  • Kemal Dervis, the new mega-minister of the Turkish economy and former World Bank vice-president, talks about the Turkish economy and the growing sense of imminent change in his country.
  • Jean Lemierre, president of the EBRD, discusses the bank's role in central and eastern Europe, where it is still struggling to define its place.
  • Egypt has weathered the economic storms of the past two years and looks set for steady growth over the next decade. But tough decisions must be taken on the exchange rate and privatization if the country is to achieve its long-term potential.
  • How times have changed. Only three years ago, any foreign investor planning to come to Indonesia would have been delighted to receive an appointment list featuring the following names: Bob Hasan, minister of trade and industry, Ginandjar Kartasasmita, co-ordinating minister for economics and finance, and Ali Wardhana, economic adviser to then president Suharto. If he also managed to see Siti Hardiyanti Rukmana, the president's daughter, he would probably have been immediately ready to sign on the dotted line.
  • Issuer: RHM Finance Amount: £650 million Type of issue: whole-business securitization Date of issue: February 28 Arranger: JP Morgan
  • David Komansky has found an innovative new way of getting analysts on his side - he insults them. The Merrill Lynch chief executive was taking questions from the floor after delivering his speech at the firm's second annual investor day conference in New York last month.
  • Jorge Gallardo, minister of finance and economy of the Republic of Ecuador, offers his views on sovereign debt restructuring.
  • A cooling in relations between Sergei Dubinin, former governor of the Russian central bank and now deputy chairman of Gazprom, and the EBRD lies behind the very public dispute between the bank and the management of Russia’s largest company.
  • Minority investors in Russian companies have got their act together. Before the 1998 crisis foreigners were making enormous returns from a soaring stock market. The few that bought into problem companies, and saw their investments diluted, won the sympathy of the market but little else.