The global financial crisis has taken hold in the region, leading to a drastic slowdown in traditional capital-raising. With job cuts expected soon, investment bankers are working hard to meet nervous clients’ needs and perhaps simultaneously save their own jobs. Lawrence White reports.

Newly peaceful, liberalized Algeria is an attractive prospect for Middle Eastern and European investors. But a change in the political wind has blown in a whiff of protectionism. Dominic O’Neill reports from Algiers.

At a town hall meeting in New York on November 17, embattled Citi chief executive Vikram Pandit felt compelled to spell out the basics of banking to his assembled troops.

"The issue has gone unanswered for years. What is going on is simple stealing. We don’t need new laws against this, we already have them. If the Fed won’t step in, then the Department of Justice has to"

Investors’ fears about the limitations of the debt capital markets have reached extreme levels of late. A UK treasurer recently told Euromoney about an incident his firm experienced earlier this year.

"Fees are way up... I mean, risk is being more appropriately priced"

Among the delegates at the 2008 Felaban conference in Panama City were two senior members of the fixed-income department at Santander, named best bank in Euromoney’s 2008 Awards for Excellence in July. The Spanish bank sent Dan Vallimarescu (head of DCM) and Erik Deiden (senior VP) to the conference but unfortunately managed to book their trip so late that the best hotels available were not exactly Panama’s finest.

"You may ask what there is to celebrate," said Hans Van Beeck to a decent-sized crowd of clients at Société Générale’s Beaujolais Nouveau party in Tokyo on October 20. Referring to the markets’ gloomy mood, Van Beeck, chief country officer for the French bank’s securities operation in Japan, suggested that the young wine might stand as "a symbol of nature’s ability to rejuvenate itself" and thus lift his guests’ spirits, if only temporarily.

Don’t shed a tear for government authorities working overtime to sort out the financial crisis. The dire situation is playing into their hands by not only increasing their influence but also helping to solve one of their own long-running challenges – how to attract top talent on the cheap.

Even though it is now under pressure from the global financial crisis, Brazil can look back on 2008 as a relatively good year, with growth close to target, and look forward from a position of strength, sustained by high forex reserves and a sound policy environment. Laurence Neville reports.

Long sheltered from the credit crunch, sovereign, supranational and agency spreads have ballooned in the wake of the introduction of government-guaranteed bank debt. How will SSA names find their place in the uncharted territory of Libor-plus? Jethro Wookey reports.

With capital markets effectively closed, cash-rich Chinese firms are well placed to profit. They have tended to rely less on international markets for funding than some regional peers, and are able to develop strategies without the liquidity worries that plague rivals. Lawrence White reports.

Zombie banks are stalking the global economy, choking off credit to viable businesses. The solution, writes Lincoln Rathnam, is a straightforward separation of the good from the bad.

The spread of the credit crisis to emerging countries will have more than just domestic repercussions.

Banks in emerging markets appeared to have escaped the worst of the financial crisis. Now, as capital markets seize up and the global economy heads for recession, they must face the same liquidity and solvency pressures as their western counterparts. Sudip Roy looks at the banks most likely to cope.

Beloved by the international markets for her professionalism and by most compatriots for her reformist zeal, Mulyani Indrawati is battling with those who prefer things done the old way. Lawrence White spoke to her at the G20 summit.

Access to debt refinance has all but dried up for corporate treasurers. Those expecting tier back-up loan facilities to bail them out could be in for a nasty surprise. Alex Chambers looks at how companies can survive the liquidity crisis.

Data from the Islamic Finance Information Service indicate that rapid growth of Shariah-compliant banking comes mostly from a low base. Is the sector set for a wave of consolidation as organic growth slows? Chris Wright reports.

The market is growing fast in Muslim countries and among Muslim communities. Its fuller development, Euromoney’s roundtable of experts suggests, depends on clearer views on objectives, further development of regulation and standardization of products and approaches.

A tumbling blade has to land some time. Hank Paulson may have decided against trying to stop it directly but John Paulson is apparently back buying mortgage-backed securities. Louise Bowman speaks to other credit investors who believe there is money to be made from this shattered market.

Gatwick sale will test appetite for infrastructure assets.

Vikram Pandit needs a good deal, and fast, to save not just his tenure but possibly his bank.

The credit crisis has, so far, raised Santander’s relative standing among its peers, as the Spanish bank has sidestepped some of the pitfalls of its rivals and picked up a few bargain acquisitions. The bank’s reputation for savvy deal-making has also been enhanced, making it surely one of the most sought after financial sector clients for any investment bank.

If Congress is intent on playing the blame game, what of those who lend the stock?

Dubai’s property bubble has finally burst. For Abu Dhabi, it is a pain, but also an opportunity.

Chi-X has announced that it is bringing its multilateral electronic equities trading platform to Japan, placing itself in direct competition with the oft-criticised Tokyo Stock Exchange.

In November, Grand Canyon Education, a provider of online education services, broke the US market’s 15-week drought of IPOs with a $126 million deal, ending the US’s driest spell since 1975.

Government provides a bridge for primary market funding.

Last month a non-asset trigger event was announced for the Granite master trust. This is securitization-speak for saying the Northern Rock master trust is dead. It is now a static pool – similar to a traditional pass-thru structure. The decision to allow the trust to breach – by allowing the seller’s (Northern Rock) interest to fall below 8.75% – increases the risk of note extension on short triple As with long legal final maturities and all non-triple A-rated notes. Even so, news of the event sent all Granite triple-A spreads wider – to 560/660bp, according to RBS ABS research.

Up to now interest in volatility as an asset class or strategy has been limited.

Once out of favour, futures traders are coming into their own by maintaining solid positive returns in grim markets, argues Neil Wilson.

Kurt Baker, head of Morgan Stanley’s prime brokerage arm in Asia, has left the company. Morgan Stanley chief executive John Mack announced in October that the prime brokerage business would be reassessed. Hedge funds’ sentiments towards prime brokers in the current climate were expressed in Clontarf Capital’s November newsletter. "For many hedge funds, particularly those with assets below $300 million, it is clear that while they may have thought they had a loving relationship with their prime broker, they were, in effect, being used all along," says the newsletter. "The party is firmly over for many funds, and the prime broker is one more adversary to deal with in what feels like a multi-pronged attack (from markets, investors and regulators, as well as other funds)."

57 the level of the State Street Investor Confidence Index, a record low

In a stark reflection of the reliance of Spanish securitizers on the European Central Bank’s largesse, the Spanish government has itself agreed to purchase Spanish RMBS and SME CLOs. It has established a Financial Asset Acquisition Fund that will purchase securities with a minimum double-A rating up to €50 billion in volume. Spain has also introduced a mortgage moratorium for the unemployed under its mortgage policy facility. This will enable jobless workers and pensioners with families to support to defer mortgage payments for up to two years. The moves reflect concern about the impact that Spain’s real estate slump will have on the wider economy.

The funding gaps at Depfa that forced the bail-out of parent bank Hypo Real Estate (HRE) are threatening to derail the modernization of London’s underground train system. Tube Lines’ improvement of the Jubilee, Northern and Piccadilly lines is reliant on funding from the Dublin-based bank for its roughly £2 billion ($3.1 billion) refinancing deal. Now that Depfa’s business model has proved unworkable in this environment, with the short-term markets no longer an option for funding the bank’s long-term assets, the Tube Lines project could be in danger. "Depfa’s credit line has dried up," says an analyst. "The bank has a funding commitment to Tube Lines, but the question now is whether or not it’s good for that commitment." The structure of the Tube Lines refinancing deal is not a common one. Apart from the issuer facilities, it comprises £1.15 billion in class A-1 notes, £95.26 million in class A-2C notes, £300 million in loans from the European Investment Bank and nearly £250 million in class B, C and D notes. Depfa’s involvement is across that spectrum, with the exception of the EIB loans. The bank is the issuer facilities provider and the purchaser of all the class B, C and D notes. The A-1 notes were all bought by Goldman Sachs, which then sold a portion of the notes back to Tube Lines and committed itself to buy them back in the future under a forward note purchase agreement (FNP). Goldman buys back the notes in instalments in accordance with an agreed schedule. There is then a similar FNP agreement in place between Goldman and Depfa, with the US bank selling the notes on to Depfa under their own agreed schedule. "Financing with an FNP over two banks is unusual," says Nicolas Painvin, senior director in Fitch Ratings’ Global Infrastructure and Project Finance Group. "We’ve never seen this before in the Fitch project finance portfolio, at least not on the transport side."

Henning Rasche, president of the association of German Pfandbrief banks (VDP), has resigned as a member of the board of managing directors at Eurohypo, effective December 31. His replacement will be Ralf Woitschig, head of public finance at Eurohypo’s parent, Commerzbank. Rasche, who was re-elected to the VDP presidency in June, has been at Eurohypo or its predecessors since before the jumbo Pfandbrief market launched in 1995.

The losses in the long/short strategy favoured by the majority of hedge funds show no signs of abating.

A survey of 100 institutional investors conducted by business school EDHEC showed that only 15% have invested in replication products, with 30% reporting that they will never do so. The majority of respondents doubted that the behaviour of hedge funds could be replicated and criticized the products’ poor performance, lack of transparency and deficient technology.

John Paulson, George Soros, Citadel’s Ken Griffin, Harbinger Capital’s Philip Falcone and Renaissance Technologies’ James Simons were all grilled by Congress in November about hedge funds’ role in contributing to the financial markets’ meltdown.

Although 60% of UK hedge funds surveyed by consultants Kinetic Partners said they were strongly supportive of the industry best practices standards overseen by the Hedge Fund Standards Board, fewer than one in 10 said they would sign up to them. The HFSB standards, put together in January by a group backed by 10 hedge fund managers, lay out a recommended approach to issues including risk management, disclosure, governance and valuation. Respondents cited regulatory burden and compliance concerns as reasons why they would not comply.

Inter-dealer broker GFI has poached a team of veterans from it its rival TFS-Icap. The move is likely to result in the defection of four or five of TFS-Icap’s staff in Tokyo and another veteran broker in Hong Kong, pending the resolution of contractual issues.

In its latest report on OTC derivatives market activity, the Bank for International Settlements says that notional amounts of FX derivatives increased by 12% to $63 trillion in the first six months of 2008. Gross market values rose by 25% to $2.3 trillion. The expansion was fastest in options and currency swaps. BIS reported that outrights, which account for roughly half of total OTC FX derivatives when measured in terms of notional amounts, grew less quickly.

UK pension funds slash equity allocations.

Rating downgrades threaten CLO structures.

Multilateral trading facilities have been gaining market share in recent months but the market itself has been shrinking. MTFs’ conspicuous success is also attracting some unwanted attention.

"If you track our market performance since the election in early March... there is probably less volatility" -Dato’ Yusli Mohamed Yusoff, Bursa Malaysia

In response to the impact of the global economic crisis on central and eastern Europe, the European Bank for Reconstruction and Development is looking to increase its investments in 2009. EBRD president Thomas Mirow has outlined a proposal to invest up to €7 billion, a record amount for any single year since the bank was founded and 20% higher than previously planned. As EBRD investments have typically attracted additional funding from commercial partners of at least 2:1, EBRD-led financing could exceed €20 billion in 2009.

Parex banka, Latvia’s second-largest bank, has been effectively nationalized by the authorities in Riga after a run on the bank. Under the agreement with the Latvian government, some 51% of Parex banka shares were transferred to the state-owned Mortgage and Land Bank of Latvia with a buy-back option after one year. Majority shareholders Valery Kargin and Viktor Krasovitsky will retain a 34% holding, with the 15% balance retained by minority shareholders. The state will also provide a €285 million loan to Parex. Commenting on the government’s move, Latvian prime minister Ivars Godmanis says: "It is necessary to do everything to avert disruptions of the banking and financial system." As part of that, his government is seeking between €1 billion and €3 billion from the IMF and the EC to rescue Latvia’s economy.

In the next few weeks, Ecuador’s president, Rafael Correa, will decide whether to voluntarily take his country into default on up to $10.2 billion of external sovereign debt, equivalent to 25% of GDP. As the international community holds it breath, those close to the government are more philosophical. "Correa runs as a 21st-century socialist government. He wants to continue sending the message to the people that the poor come before debt," says Antonio Acosta Espinosa, president at Banco Pichincha, the leading bank in Ecuador. "This default threat does exactly that – sends a clear political message to his supporters. I personally think it is a political strategy and that payments will resume in the coming weeks, but I’m expecting that some international court will analyse the legality of some tranches of the external debt." A Moody’s report that downgraded Ecuador’s foreign currency bond rating to Caa1 agrees that the government’s motivation is political and ideological. On November 14, Correa announced that Ecuador would no longer pay the 12% coupon totalling $31 million on its 2012 global bond. Now the government says it is going to make use of the 30-day grace period to decide its strategy. By December 15, Correa will have decided "if we will keep paying or go the courts".

Central bank president sees no need for recapitalization, nor guarantees for deposits or liabilities.

Big losses, growing provisions, slowing profit growth: money is no longer easy in the Gulf, as banks’ third-quarter results brutally showed.

The past few months have been significant for Austrian exchange Wiener Börse’s attempts to position itself as the prime conduit for portfolio investment in central and eastern Europe. In a notable run it has managed to secure majority control of three exchanges in the region. Most recently, it signed an agreement in November to acquire a 92.4% stake in the Prague Stock Exchange, one of the largest in central and eastern Europe, with a market capitalization of about €40 billion.

As was widely expected, the government in Kazakhstan has stepped in to support the central Asian republic’s embattled banking sector. Since the onset of the global credit crunch last August, Kazakh banks have found themselves under severe pressure given the choking off of cheap funding from abroad, which helped to finance the rapid expansion of branch networks and lending portfolios at home. At the same time the domestic economic environment has deteriorated rapidly, with GDP this year expected to come in at 4.5% – less than half the 10% average annual growth levels seen since the start of the decade. The straitened economic circumstances have also led to a sharp increase in bad debt levels. While pre-credit crunch non-performing loans were in the range of 1.5% to 3% they have now jumped to 7% to 8% although some observers believe the true figure is as high as 15%.

Eastern Europeans think it could be a haven in troubled times.

Hugo Chávez, the Venezuelan president, has taken measures to counter the effects of decreasing petro-dollars. The president has reduced his support to foreign allies and is poised to make deeper cuts at home and abroad as oil prices plunge.

Fertilizer maker CF Industries is looking to invest $1 billion to develop petrochemicals plants in Peru. The company plans to build two plants – one producing ammonia and one urea – the company’s president announced at the Asia Pacific Economic Cooperation (Apec) forum, attended last month by leaders from 21 Pacific Rim economies. Peru is working to persuade foreign companies to invest billions of dollars to develop petrochemicals plants that can utilize products coming from Peru’s Camisea gas field.

Uncertainty over bridge loans for infrastructure projects.

The Asian units of the world’s leading investment banks have not been immune to the industry-wide job cuts being announced.

Japan’s Marubeni and Chile’s Antofagasta have started to structure the financing for a $2 billion mining project in Chile. The project, called La Esperanza, could receive up to half of its financing from equity investments, with the remainder raised through credit agencies, multilaterals and commercial banks. Given the hostile banking environment, the commercial tranche, which would be syndicated among international banks, would likely not exceed $500 million.