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August 2007

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  • What exactly is causing weakness in the credit markets? The obvious answer is contagion from the sub-prime crisis – the fear is that there will be massive losses from the original securitizations of these poor-quality loans and the CDOs backed by these securitizations.
  • The recent contraction of liquidity has changed the landscape.
  • Asset manager New Star has seen significant growth in its alternatives business. In the second half of 2006, the firm raised more than $550 million for two hedge funds. In May this year, it launched a European opportunities hedge fund, which has now about $100 million in assets under management. In the last quarter of this year, New Star will be launching a property hedge fund. Robin White, of Rock Capital, is joining to head the fund.
  • But there are signs that the supply of suitable targets is contracting.
  • Bank of America has carried out a "functional alignment" of its FX business to drive what it says is greater collaboration across its global rates, currencies and commodities businesses. These are managed overall by Richie Prager. As part of the alignment, Gerhard Seebacher has been named head of trading for all GRCC products. Chris Mandell continues as head of currencies and local markets and has also been named head of sales for GRCC, a newly created position.
  • China study dispels misconceptions about performance.
  • The UK Treasury has presented its proposals for a covered bonds legislative framework. The UK’s unregulated, structured covered bond market is the largest in the world of its type but suffers alongside regulated markets such as those in Spain and France through not being compliant with the Ucits directive. The new proposals, when implemented, will do away with this disparity, halving the risk weighting of UK covered bonds to 5%.
  • Independence day for Walsh: The WeeklyFiX
  • Hypo Real Estate has agreed to buy Depfa Bank for €5.7 billion. The announcement came as a big surprise to many in the market. Unlike the protracted ABN Amro bid, the deal appears to be free of hindrances. There had been speculation that Dexia SA, Europe’s biggest public sector financier, would come in with a bid. However, despite Depfa’s shares having risen nearly 6.5% early in July as a result of such speculation, an offer never materialized. Hypo Real Estate’s takeover will create a public sector lender to rival Dexia. Dexia has some €271 billion held in public sector and infrastructure assets. Depfa and Hypo combined have €254 billion.
  • Are Pfandbrief issuers out of touch with modern rating methods?
  • Investment-grade issuers balk at increased costs.
  • Every so often the insurance-linked securities (ILS) sector rears its head and FIG bankers get excited that they will have a rich vein of new assets to bring to the capital markets. Around two years ago the great hope was that value in force (VIF) securitizations from UK insurance companies would take off following a couple of landmark transactions and regulatory encouragement from the Financial Services Authority, but activity there has slowed to a near halt. Once again there are now signs that investment banks and insurance brokers are ramping up their product capabilities amid a pick-up of deal flow in the past year.
  • Investment house issuance on private electronic markets relieves them of regulatory burdens and speeds up funding. But poor liquidity remains a problem.
  • UBS has merged its Scandinavian and UK debt capital market coverage teams for the corporate and public sector. The team is headed jointly by Allegra Berman and Mahnaz Safa. Cecilia Hulten, who previously looked after Scandinavian coverage, is leaving the firm to pursue other interests after five years. The integration does not include FIG, which was already run on a pan-European basis.
  • Bank of America has appointed Derek Dillon and Doug Baird as co-heads of global equity capital markets, replacing Ciaran O’Kelly, who was named co-head of global equities in June, a role he shares with Peter Forlenza. Dillon and Baird are both based in New York and report to Forlenza and O’Kelly as well as Bill White, the global head of capital markets.
  • John Cummings is the new treasurer of Royal Bank of Scotland. He replaces Brian Crowe, who moved into a senior management role in the corporate bank several years ago. Ron Huggett, a well-known figure in UK bank financing circles, continues as capital-raising director. Continuing with the Scottish financial theme, Andy Townsend has replaced Cummings as treasurer at Standard Life.
  • Investors will still want access to the best-run funds.
  • Like most Philippine banks, Banco De Oro has enjoyed a re-rating as the fortunes of the local market have improved. With the shares now at a price to book ratio of about 2.8 and on a prospective P/E ratio of 18, even CEO Nestor Tan thinks the bank, like the stock market, is fully valued for now.
  • "Having been a customer of your bank for more than 10 years, I find it difficult to describe any of you services as excellent. Another good example of SBM’s excellence in customer care I believe is the underground parking at your Vacoas branch. The parking used to be available for customers. However since a few months back customers no longer have access to it, as it seems that it is reserved for the exclusive use of the branch employees!! So much for customer sovereignty"
  • The newly enlarged CME Group, which now also comprises former rival Chicago Board of Trade, says that its second-quarter 2007 total revenues were up 17% to $329 million and net income up 15% to $126 million on the second quarter of 2006. Commenting on the figures, CME Group chief executive Craig Donohue referred to aspects of the exchange’s growth strategy, including FXMarketSpace. In a web broadcast Donohue admitted that volumes fell off in July but that customer "onboarding" had increased and that the joint venture with Reuters remained on track to break even at some point in 2008.
  • Hedge fund administrator GlobeOp and hedge fund Archeus have agreed to an amicable settlement of the claim filed by Archeus in July. Archeus shut down last year, blaming its closure on GlobeOp for its poor administration services. These, the fund said, had reduced investor confidence and led to redemptions. The filing highlighted the vulnerability of hedge fund counterparties as being held responsible for client losses, and so the settlement is largely welcomed by the hedge fund administration industry.
  • Asset management research and advisory firm Carbon360 says assets under administration for hedge funds globally are $3.4 trillion. Single-manager assets under administration are $2.72 trillion, the firm claims. The figures were reported in Carbon360’s 2007 fund administration fact book, which analyses 74 hedge fund administrators.
  • If, as expected, US regulator the National Futures Association implements a proposal it has sent out to its 43 forex dealer members (FDMs), the result will be that many firms will have to attract fresh funding or close down.
  • According to a report by Aite Group, Spain’s fund of hedge funds market is taking off following legislation allowing retail investors to put money into the asset class. Spanish investors with more than €50,000 in disposable assets can invest in hedge funds, although it is expected that funds of hedge funds will be the preferred route. Hedge fund managers should be positioning themselves to capture the new influx of capital from the investor base.
  • There is a lot going on in the swaps industry right now.
  • Albania has finally secured a credit rating in a move that the authorities in Tirana hope will help boost the Balkan republic’s investment profile with international investors. Moody’s Investors Service assigned a Ba1 country ceiling for foreign-currency bonds and a B1 issuer rating to the government. Moody’s also awarded a B2 foreign-currency bank deposit ceiling along with a local-currency country ceiling of A3 and a local-currency bank deposit ceiling of Baa1. All ratings carry a stable outlook.
  • London Stock Exchange takes on Euronext with launch of dedicated market.
  • Investment banking has long been a demanding profession. Bankers have been accustomed to always-on cell phones, the ubiquitous BlackBerry and late-night meetings. Spare a thought, however, for one banker caught between a call from the boss and a call of nature.
  • Azerbaijan is set to become the latest sovereign from emerging Europe to tap the international bond markets, with a probable $300 million, five-year transaction slated for launch in September or October, market conditions permitting. The Caucasian republic has mandated Citi and Deutsche Bank to lead manage its debut transaction, which has been in the offing for several years. Gunduz Mammadov, chairman of the State Committee for Securities, says that the proceeds from the planned issue have been earmarked for general funding purposes. Deutsche Bank beat off competition from 11 other banks to book its berth on the landmark transaction and Citi was a shoo-in for the deal, having been a ratings adviser since 2005. Azerbaijan has a Ba1 issuer rating from Moody’s Investors Service and a BB+ grading from Fitch Ratings. The outlook on both ratings is stable.
  • In July, Credit Suisse announced that it had finally been allowed back into investment banking in India by local regulator Securities and Exchange Board of India. The new merchant banking licence permits Credit Suisse to undertake securities underwriting and corporate finance in what has been one of Asia’s most active markets in the past two years.