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August 2004

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  • The high-stakes game of poker between jailed businessman Mikhail Khodorkovsky and Russian president Vladimir Putin entered its final round last month after bailiffs seized Yukos?s core production unit and threatened to sell it off at knockdown prices. Bailiffs seized Yukos?s Yuganskneftegaz production subsidiary on July 20 to pay off a $3.4 billion tax bill, relieving Russia?s second-biggest oil company of its main cash cow. The subsidiary accounts for 70% of Yukos?s oil reserves and 60% of production. It has also contributed most of Yukos?s double-digit production growth in recent years.
  • With massive capital, some of the finest minds and cutting-edge technology, the bulge-bracket global securities firms offer clients a seamless one-stop service. Despite their dominance, though, cracks in the securities walls they have built remain to be exploited, as Wellington Securities is proving.
  • Hedge funds regularly close or return money to investors, so the decision last month by David Muschel to return capital to investors in his Jemmco fund ought to have been unexceptional. But the explanation he gave gives pause for thought. Some of the fund's strategies, he said, simply cannot perform in today's environment.
  • To integrate or not is the question facing Ukraine?s powerful oligarchs in the last months of president Leonid Kuchma?s 10-years in power.
  • Despite pockets where problems persist, privatization, consolidation, and improved risk management and regulation are bringing widespread advances in emerging market banking systems.
  • The UK's financial regulator will take a dim view of companies that respond in a legalistic way to its investigations, threatening exemplary sanctions against those that don't cooperate fully.
  • Analyst neglect of UK small-cap and mid-cap stocks subtracts £8 billion ($14.7 billion) from the capitalization of the UK equity market, according to UK research boutique Equity Development. Comparing the valuations of stocks for which there are nil, one, two, or more than three analysts publishing research, Equity Development found discounts for neglect in 75% of the sectors for which there is useable data.
  • A new style of leveraged financing is set to take off in Europe as hedge funds' appetite for second-lien debt crosses the Atlantic.
  • Although many governments will keep pushing loose fiscal policies, capital repricing is inevitable ? probably led by the ECB. That lead should favour the euro and European bonds, at least for a while
  • The emergence of investable hedge fund indices has provoked a great deal of debate in the hedge fund industry, with extravagant claims being made by both proponents and detractors.
  • API stands for application programming interface. Sadly for linguistic purists it has become a geekspeak verb; so banks can "API into another bank" or, as one user puts it: "We just API what we need." But API matters. Crudely put, it is a method of allowing programmers to develop additional functionality to boost the capabilities of a given piece of software. It is a way for banks to retain proprietary control over off-the-shelf products, and can mean that a lesser product can rival a more expensive one after the in-house programmers have got their hands on it. Any product worth its salt in the financial technology world (and far beyond - Google, for example, offers API tools) will give its users the opportunity to build on top, thereby combining the best of both buy and build worlds.
  • The US Federal Reserve?s upward interest rate move at the end of June came as no great surprise on Wall Street. It might well have been noteworthy for being the first rise in four years but noises about inflationary concerns and US economic growth had already made a 1.25% rate a dead cert. ?The 25 basis points increase had been priced in a month before,? says one Wall Street trader.
  • Ask most Hong Kong bankers frequenting the bars of Lan Kwai Fong about their last brush with anything Czech and most would point to sleepless nights watching the Republic?s flirtation with football greatness at the recent Euro 2004 championships. If local hedge fund manager Richard Johnson has his way, though, that is about to change.
  • By Camilla Palladino
  • The growing problem of pension fund shortfalls and government attempts to cope with them are prompting a cautious approach from private-equity investors, with the UK particularly badly affected.
  • Euromoney's first financial technology users' survey polled the market to find the software companies that had hit the heights expected of them by an ever more demanding financial services industry. As Jonathan Turton discovered, it's an industry that has never been afraid to get its programming feet wet, but the stakes are getting higher as compliance demands on financial institutions increase.
  • Despite Baillie Gifford?s lack of corporate activity, the firm has set up several joint ventures. Amin Rajan, CEO at research firm Create, says: "JVs fit well with the structure and it?s a sign of growing confidence."
  • Merrill's asset management business, MLIM, is getting back to its retail roots. Originally established in the US to serve the private-client business, MLIM grew, in part by the acquisition of mercury Asset Management in the UK, to become an institutional asset manager. Now, says Bob McCann, vice-chairman of the wealth management group that comprises GPC and MLIM: "We have developed a third-party retail business that is profitable and growing fast."
  • Rapid growth in the asset-backed commercial paper market has stretched liquidity lines. Sponsors have therefore begun to develop innovative new structures to cope with the problem
  • Merrill Lynch (Bank) Suisse is the largest of Merrill's onshore international businesses, with $11.16 billion assets under management. Regarded as separate from the GPC business, the Swiss bank has been re-establishing links with it over the past two years in a bid to boost business. "While the Swiss bank wasn't making a loss, assets had settled to about $9 billion and stayed there," says Nick Stonestreet, who became CEO of the Swiss bank in July last year. "There were many things that needed addressing, such as service quality, but the most important move in the last year has been a reconnection to Merrill Lynch GPC. Before that we tended to stand alone."
  • There is no room for nostalgia in the new-look Merrill Lynch. Charles Merrill might have wanted to bring Wall Street to the masses but it is the affluent who command the most attention from his successors. Since 2000, James Gorman has shaken up the private-client business with dramatic results.
  • The Prague Stock Exchange, which had been more or less comatose for years, sprang into life thanks to the $211 million IPO from generic drugs maker Zentiva. It was the first IPO on the exchange for a decade.
  • European corporates are making the most of burgeoning demand in the US private placement market. This raises the profile of the asset class but is hampering the development of an equivalent market in Europe and might be prompting banks to oversell issuers.
  • The first day of the Goodwood Festival last month, one of the UK?s most important horse-racing events and a highlight of the summer season for over 200 years, was indeed memorable. ?Glorious Goodwood?, dubbed the most beautiful racecourse in the world, lived up to its reputation. A number of ABN Amro?s senior debt and equity capital markets bankers and an assortment of journalists basked in sunshine, enjoying the scene. The only trouble was picking the right horses. Nearly everyone went for Pango, the winner in the last race, shunning another horse called Freeloader, even though it seemed to be running in ABN Amro colours.
  • It was supposed be a model merger and the first significant tie-up outside the energy sector as Russian companies finally get serious about taking on industrial companies abroad. But the shareholders of heavy equipment producer OMZ left their prospective bride Power Machines waiting at the altar when they failed to show up to its AGM.
  • Fund managers are increasingly pessimistic about global growth expectations, inflation is still a concern and only bullishness on Japan bucks the trend, according to Merrill Lynch?s latest research.
  • In part two of our structured credit roundtable, participants discuss the new products and strategies available to investors in the structured credit market. These innovations can be complex to analyze and require new infrastructure and skills to manage effectively. But the bottom line is: no-one can afford to ignore this asset class.