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April 2001

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  • 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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 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.
  • Just after the piece of masonry connected with the side of the mongrel's head, a showdown ensued outside Banca Agricola's administrative headquarters. The pack of dogs, which seconds earlier had been snarling at pedestrians and leaving their own special deposits on the bank's doorstep, stared at their attacker. The man who threw the missile glared back.
  • Whatever Russia's government is or is not doing, Russian companies have found their own reasons for making improvements in corporate governance and boosting shareholder value. At least one market player dubs this consolidation process reprivatization. However there is still much to be done to restore the brittle confidence of local investors and only after this has happened will foreign funds consider returning to a market which knows how to burn them. Ben Aris reports from Moscow
  • 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.
  • 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.
  • Issuer: RHM Finance Amount: £650 million Type of issue: whole-business securitization Date of issue: February 28 Arranger: JP Morgan
  • Last month's announcement of a merger between DG Bank and GZ Bank was a long awaited step in the consolidation of the top level of Germany's cooperative banking sector.
  • A little more than three months after Greece's entry into Emu, the country finds out that eurozone membership does not guarantee immunity from financial and other crises raging in neighbouring countries, such as the former Yugoslav Republic of Macedonia and Turkey. However, membership has helped reduce, if not eliminate, the sensitivity of its bond and equity markets to events in nearby emerging markets.
  • The senior Botswanan banker who told Euromoney last year that he didn't care what rating Botswana got, as long as it was better than South Africa's, has finally got his wish.
  • 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.
  • Credit default swaps have proved a popular derivatives instrument with banks and other credit investors, but one possible trigger for default – the restructuring of a bond or loan – has cast uncertainty over the market. It is possible that liquidity might be damaged by the proliferation of different classes of instruments.
  • The Romanian government, many observers reckon, is playing a game of bluff. The IMF is told tales about privatization and restructuring while the populace is fed sops. The government, meanwhile is mired in inaction. Investors aren’t going to rush into such a market until they are offered deals that are sufficiently attractive to outweigh unexpected risks.
  • Romania is not planning to over-compensate for scarcity by issuing heavily. But it is clearly keen to establish itself in the international debt markets.
  • In the first quarter of this year, the US Federal Reserve has cut interest rates by 150 basis points. But Nasdaq is down 25%, most European equity markets have fallen 15% to 20% and even the Dow, which had been flat for two years, is now off 14% for the year.
  • In a world where sovereign bondholders are disparate and disunited they are hard pressed to get a good deal if a defaulting sovereign and its bank advisers devise a unilateral exchange offer or other restructuring. With the often bitter experience of three such restructurings behind them, bondholders are getting together to protect their position.
  • In Russia, large financial-industrial groups exist alongside a new breed of commercially-minded and successful industrial groups that have made their money by more traditional and honest means.
  • Evgeny Shvidler, president of Russia’s sixth largest oil company Sibneft, talks about corporate governance and strategy.