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April 2011

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  • “The prime-minister designate asked me: ‘Are you refusing to serve your country?’ Something inside me said ‘Look, go, give it a try’”
  • The real level of problem loans at China’s biggest banks is shrouded in mystery. The good news for investors is that whatever happens, the government will support them – it got them into trouble in the first place. But such state control has led to a reappraisal of what China’s banks have to offer. Elliot Wilson reports
  • Stuck for a yield-enhancing idea in these low interest rate times? Want an asset that provides consistent returns and offers a hedge against market and political crises? One fund manager reckons it has a gem of an idea.
  • Apples and oranges
  • Samir Radwan was a surprise choice as Egypt’s new finance minister – even to himself. Appointed at the height of the chaos, the retired economist is working hard to sustain Egypt’s finances and economy through a period of extraordinary upheaval. Eric Ellis joins him in Cairo
  • After the default of one of its biggest state-owned companies in December, the country’s latest round of problems began: ratings downgrades, rising inflation and an 8.5% devaluation. Yet some investors are optimistic. They think its markets are cheap, and are waiting on a new wave of IPOs. Lawrence White reports
  • “The sovereign always wins. Someone has to pay the sovereign bill and it is always the corporates – you can’t take on the house”
  • The organizers of last month’s Inter-American Development Bank annual meeting in Calgary had been hoping to show off the picturesque setting of this oil-rich city, nestled in the foothills of the Rocky Mountains. But with visibility reduced by freezing fog and snow flurries to roughly one block for most of the conference, delegates had to take the Albertans at their word. With local newspapers describing the prolonged winter as one of the worst in recent memory, more than one delegate was seen with labels still attached to heavy overcoats, scarves and woollen hats. Still, there was an upside for the organizers. “Last year we held the conference in Cancún and it was a nightmare getting the delegates and even some of the speakers off the sun-loungers,” said an official who was visibly enjoying the ease of corralling participants in between conference halls, lunches and meetings. Many delegates said they didn’t leave the conference complex – linked to official hotels – for the entire meeting. “Attendance at the event’s functions is definitely up on last year,” said the official with a smile.
  • Hutchison Ports Holdings chose Singapore for a record-breaking IPO because SGX’s business trust structure assures the Hutch listing, HPH Trust, of continuing control by its existing owners. Investors bought the deal because of its yield prospects, but are they guaranteed? Chris Wright reports
  • Corporate Korea is caught in the aftermath of a derivatives disaster. One CEO tells how he nearly signed a deadly contract. Many others weren’t so lucky. As KiKo fiasco litigation continues, work is under way to avoid a repeat catastrophe. Lawrence White reports
  • Many in the European securitization market could be forgiven for not being keen to invest further in the UK pub sector given the performance of some transactions of late (see Punch drunk: Battered ABS bondholders face knockout blow, Euromoney March 2011). However, over lunch last month a securization market stalwart revealed to Euromoney that he had decided to take a different tack in approaching the sector. Rather than taking a punt on some Punch triple-Bs he has decided to really take on some risky exposure, by buying the freehold on his local village pub. Not dissuaded by doom-laden forecasts about the impact of the smoking ban and cheap supermarket booze, this banker is going to get down and dirty and show the industry how it should be done. His modus operandi is clear. “Keep it simple,” he explains. “The food will be good, honest pub food – nothing drizzled.” A metaphor for the securitization industry itself in these straitened times perhaps?
  • New rules and regulations on bankers’ compensation are changing the tempo of financial services headhunters’ business. Many are finding that the dance of recruitment is adagio. Nick Lord reports
  • Korea Investment Corporation is unusual in having no liabilities that it has to provide for in its investment strategies. So chief investment officer Scott Kalb has relative freedom to explore alternative and longer-term investments. Chris Wright reports
  • In the financial world, brand and institutional heritage are powerful. As an aside, I am intrigued to ponder how many blows the Goldman Sachs brand can suffer before it is decisively diminished. This latest episode concerning maverick board member Rajat Gupta is disconcerting. There is a huge difference between sitting in a franchise seat, as most investment bankers do, and creating the franchise. I am always intrigued when I have the chance to meet financiers who have had the guts to found their own firms. It was thus a great pleasure to have lunch with Jonathan Lourie, one of the co-founders of Cheyne Capital, and John Hyman, who recently joined the London-based hedge fund. They are Morgan Stanley alumni. Jonathan, unusually for a banker, is a modern renaissance man. We had so much to talk about that I was sad when lunch was over, which is more than can be said for most business lunches.
  • Matt Koder made his name in Asia. And there have been a few personnel changes in the region that caught my eye this month. At Morgan Stanley, David Russell, head of equities in Asia, moves to London to run EMEA equities. He will be replaced by Gokul Laroia, formerly co-head of Asia Pacific investment banking. Gokul’s co-head, Kate Richdale, becomes Morgan Stanley’s sole head of Asia Pacific investment banking. This announcement has caused debate, with commentators musing which of the co-heads had been promoted and which had been demoted. "They have both been promoted," my source intoned. "And please don’t even get me started on Kate’s supposed feud with Wei Christianson [who has just been promoted to co-CEO of Asia for the firm]. They’re both beautiful women who speak fluent Mandarin. Beautiful women can be like cats: they bristle if you put them too near each other."
  • Morgan Stanley recently unwound credit hedges on monoline insurer MBIA at possibly a big loss. This could hit first-quarter results for the firm’s troubled fixed-income division and compound its reputation as disaster-prone, at least when it comes to credit trading.
  • If banks can’t increase their return on equity through the markets, they might have to look more closely at components of their cost base, chiefly compensation.
  • "The local corporate bond market was getting better and more liquid before the nationalization of the pension funds in 2008 [into the publicly held National Association of Social Security]. Then liquidity shrank. Anses continued to buy some of these bonds but some issuance shrank," says Pablo Perez Marexiano, director of corporate banking at Standard Bank. Anses has continued to buy bonds related to infrastructure, with purchasing decisions more policy oriented than commercially driven. Despite this, Moody’s says local market volumes grew strongly in 2010 following a mild decline in 2009. Total issuance totalled the equivalent of $4,278 million in the first 11 months of 2010 (the latest data available), an increase of 86.5%.
  • Younis Al Khouri, director-general of the UAE federal finance ministry, speaks about his department’s cash injections into the banking sector, and his plans for the first UAE-wide sovereign bond.
  • Euromoney’s favourite tale of entrepreneurial exploitation of local arbitrage opportunities was, until recently, that of the Hong Kong businesswoman who apparently set up shop outside a well-known bar in drinking area Lan Kwai Fong during its 1990s’ heyday. Spotting that the bar was running a promotion whereby bearers of the Standard Chartered HK$10 note could redeem it for drinks at that (deeply discounted) price, she immediately acquired a stack of the bills and – so the possibly apocryphal tale goes – began flogging them to thirsty punters for the bargain price of $12.
  • If anyone has experience of shareholder expectation associated with the accumulation of a sizeable cash pile it is David Levin, chief executive of UK-based B2B publisher United Business Media. In 2008, having undertaken a series of disposals since taking over at the firm in 2005, Levin explored a tie-up with rival Informa that would have created a £3 billion B2B powerhouse. The short-lived approach came to nothing as it immediately flushed out a rival cash bid, however, and UBM has subsequently focused on much smaller bolt-on acquisitions. "We have made over 80 acquisitions in the last six years but very few of these
 have been in a contested environment – we have focused on smaller private and more
 complex deals," explains Levin (who was chief financial officer of this magazine’s parent in the 1990s and steered its acquisition of Institutional Investor).
  • Just as it comes to terms with the fallout of the global economic crisis, the Islamic sector must prepare for political instability. Dominic Dudley reports.
  • There is nothing like leading from the top and this is what Markit president Kevin Gould obviously decided to do when the firm held a 24-hour shave-a-thon in March to raise funds for charity. Gould was one of 142 employees in 13 Markit offices worldwide that submitted to the razor and shaved their locks to raise money for the St Baldrick’s Foundation and CLIC Sargent, two charities set up to combat childhood cancer. The effort raised more than $450,000 and was also an excellent business opportunity for hat sellers in the various cities across the globe in which cold-headed employees now reside.
  • Many of the world’s leading banks are struggling to cross a key threshold in their business – where their return on equity exceeds their cost of equity. That’s only likely to get worse as their capital requirements rise. The hopes of the industry are based on an improvement in market conditions. Right now, it’s struggling to make a convincing case for itself. Peter Lee reports.
  • Cash hoarding by companies combined with private equity funds’ need to put money to work are producing stellar M&A volumes, mainly in the US. But economic uncertainty and corporate caution might make the going much slower in other markets. Louise Bowman reports.
  • Share buyback latest sign of financial health; Lending still lagging income growth
  • BAML told ‘no’; Citi surprises analysts; Capital requirements might yet increase
  • Higher global inflation and lower growth – stagflation – is on the way. Deflation is much further down the road.
  • When, a few decades into the future, we cast our minds back to the early years of the 21st century, how will China shape up in historical perspective? Moreover, how are we likely to view the country’s leaders in these fulcrum years: Hu Jintao and Wen Jiabao, president and premier from 2003 to 2013?
  • The earthquake that devastated Japan put its markets under severe strain, with high volumes of orders stressing systems, and staff unsure whether to stay or flee. Those who worked through the crisis tell Euromoney about their experiences. Lawrence White reports.