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April 2006

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  • 5 The number of years it has taken the S&P 500 and the FTSE100 share indices to reach levels last seen in 2001. On March 15, the S&P 500 crossed the 1300 mark for the first time since May 2001. This is still about 15% below the index’s March 2000 all-time high. The FTSE 100 crossed the 6000 mark for the first time since March 2001 but is still almost 1,000 points shy of its December 1999 all-time high.
  • Ultra-rich investors are seeking out higher-volatility hedge funds. But they will be hard to find until strategies catch up with demand.
  • Excellent market conditions, M&A, special situations and heightened insurance activity drove record subordinated supply in the first quarter; more deals are in the pipeline.
  • “I see you have the same problem as in my country: prostitutes everywhere!”
  • Euromoney meets the chief executive of a specialist financial services firm recently bought out by management. Such deals are rare in a sector where most participants are inherently leveraged through their day-to-day operations. Is the firm’s capital structure not now rather strained? Not at all, says the CEO. It could ask its backers or other third parties for more money tomorrow and get as much as it wanted. Raising money isn’t the problem. Almost anyone can get funding right now. Identifying the right investments to build the business – that’s the tough part.
  • NIBC is planning a hybrid capital deal linked to the 10-year constant maturity swap rate. The deal, via lead manager Morgan Stanley, is fixed for the first five years at a whopping 8% before switching to the 10-year CMS plus 10 basis points. The coupon is capped at 8% with no floor. Such deals were extremely popular until a year ago but hybrid capital referenced to CMS coupons has fallen out of vogue since. The sector boomed during 2004 and the first quarter of 2005, with borrowers attracted by the highly aggressive all-in after-swap funding costs. But after the curve flattened many of these securities have traded at prices in the low 80s. With the curve as flat as it is, it seems the view is that the downside is now limited.
  • The regional real estate investment trust craze has finally sired a pan-Asian Reit, driven from Australia, and to be listed in Singapore. Despite its billing however, Allco Commercial Reit currently boasts just three assets: an office tower and shopping mall in Singapore, a stake in an office in Perth and a minority stake in an existing Australian property fund managed by the same group. That hardly qualifies for the title pan-Asian Reit but the proposed $300 million plus proceeds will certainly provide the capital to acquire more properties. The key to the success of the deal will therefore be whether investors believe the deal’s sponsor, Allco Finance Group, has the ability to find and close sufficient deals to warrant the fund’s pan-Asian billing.
  • The US housing boom is set to collapse, with adverse effects on domestic consumption. This, unlike the slowdowns in Australia and the UK, will have a marked effect on global growth.
  • The EU’s emissions trading scheme and Kyoto’s clean development mechanism are succeeding in promoting renewable energy. But electricity utilities are turning out to be surprise beneficiaries. Peter Koh reports.
  • WaMu for covered bonds
  • Dealers say the backlog of unconfirmed credit default swap trades has been reduced by 54% since September 2005. The New York Fed is asking for a further reduction by the end of June this year. How near is the market to having an infrastructure able to cope with massive growth and a broadening of the uses of CDS? Helen Avery reports.
  • Economic pressures and government policies are driving investment inland, but many of the so-called second cities already boast powerful economies. Banks see a new frontier of opportunity. Chris Leahy reports from the cities of Chengdu, Wuhan and Qingdao.
  • It’s a good job that many US investment banks have had such a strong first quarter. They need the cash to keep the regulators at bay.
  • Corporate restructuring dominance makes GE personnel rich quarry for banks boosting leveraged finance teams.
  • The ECB’s March 2 rate rise is contra-indicated by the prevailing data, which are apparently distrusted by the central bankers. In their view, recovery is well established in eurozone countries.
  • The latest public finance initiative funding for UK defence ministry accommodation is Aspire Defence Finance plc, which was launched in late March, via Citigroup and HSBC. The £1.8 billion ($3.14 billion) transaction involves two series of monoline insurance-wrapped fixed-rate notes – series A wrapped by Ambac and series B by MBIA. The triple underlying credit is rated BBB/Baa3.
  • While rivals’ share prices roar ahead, Citigroup’s languishes. Investors love stocks that are easy to understand. So is it time for Citi to develop a clearer strategy?
  • US financier Carl Icahn’s audacious move on Korean tobacco and ginseng company KT&G has made great headlines and triggered apoplexy among Korea’s more xenophobic elements. Having amassed a combined stake of 6.72% with fellow investor Steel Partners, and pressed for a spin-off of KT&G’s ginseng division to return more capital to shareholders, Icahn has even mooted a takeover of the company. In March the Icahn camp finally won a board seat in a shareholder vote, the first time a foreign investor has been voted onto a Korean board against management wishes.
  • Online trading platform MarketAxess plans to launch a client to multi-dealer emerging markets CDS index trading system in the second quarter. The system will be the first of its kind and Latin America-related business is likely to be prominent.
  • The low-key business of advancing tiny loans to the poor in developing countries is not the most obvious starting point for a new asset class on Wall Street. Microfinance has always struggled to develop because of a lack of access to financial markets. But the consistent profitability of microcredit companies is turning heads, according to Acción International, a non-profit organization that promotes small lending programmes worldwide. Its affiliates extended loans of almost $2 billion last year. “Microfinance as an industry is becoming a separate asset class for Wall Street,” says Acción International’s president, Maria Otero.
  • HK euphoria hit by rapid short circuit
  • Spanish bank forms a joint venture with alternatives specialist Vega to cater for institutional investors.
  • Unbundling of commission regulation will increase independent data provision.
  • The London Stock Exchange’s shareholders clearly have a lot to gain from Nasdaq’s bid for the market, especially if, as is widely expected, the New York Stock Exchange joins in the fray and pushes up the price even further. But what, if anything, users stand to gain is far from clear.
  • Record liquidity stymies growth of securitization.
  • Freddie Mac’s new treasurer, Tim Bitsberger, marks a break with agency tradition in being an outsider. But he reckons his US Treasury experience can only enhance Freddie’s transparent approach to raising money and its stringent risk management standards. Bitsberger’s hope is that these will serve it well as it builds out its retained portfolio again. Kathryn Tully reports.
  • The volume of European equity capital market deals from the real estate sector has been growing strongly over the past two years and is expected to increase again this year.
  • Argentina's default $800 million more than commonly assumed.
  • Deutsche Bank has hired from a private equity firm to expand its presence in the rapidly growing real estate, gaming and lodging sector in Asia. The bank has hired Matthew Mrozinski from Colony Capital, the private equity firm that specializes in real estate investments. There, Mrozinski was vice-president of acquisition and head of Asia-Pacific capital formation. In this newly created role at Deutsche, Mrozinski will report to the bank’s head of M&A for Asia, Douglas Morton, but will also be responsible for the financings of real estate deals.
  • Further reformis essential if the region’s stock exchanges are to come under the steadying influence of institutional investors.
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