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February 1999

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LATEST ARTICLES

  • The euro is a month old and already the new currency is bringing about changes more rapidly and more disconcertingly than expected. It is already clear that the removal of domestic currencies - and so the unique advantages enjoyed by local banks in their home markets - will wreak havoc with middle-tier institutions. In the payments business for example, it has only just dawned on the smaller German banks that their only asset was the Deutschmark. Without that domestic market, they will be unable to compete with the clearing giants. In the Eurobond markets, the euro will be the catalyst for more institutionalization of previously retail assets. This means the notion of local distribution will become meaningless. Local branches may sell a bank's new asset management service, but the bond-buying will be managed centrally. The winners will be the large underwriters with the best trading and research product. The losers will be banks whose operations were based on knowing pockets of local currency, largely retail investors. That is, most of them.
  • With Argentina looking seriously at dollarizing its economy, other Latin American countries have rejected the idea - senior figures in Brazil, Mexico and Colombia say it's unsuitable for their countries and some analysts agree with them. One adds that even to dollarize Argentina is a project that would take years rather than months to implement.
  • To the Big Bang Control Centre in Docklands where Reuters is preparing to convert its 520,000 terminals worldwide to the euro in one fell swoop at 1800GMT on Sunday January 3.
  • A small but notable victory was celebrated at the end of January at the London Stock Exchange: a ceremony to mark the first euro depositary receipt to be listed on the exchange.
  • Share buy-backs must be one of the most talked-about, most praised tools in the corporate restructuring kit. The Americans certainly like the strategy: in 1997 share buy-backs totalled $77 billion. But in Europe the hype has still to translate into reality. In the first 11 months of 1998 just $20.2 billion of stock was bought back, and $15 billion of that was generated by UK companies, according to figures from JP Morgan.
  • Last June, India's new finance minister, Yashwant Sinha, promised to speed up privatization and said a majority stake in ailing domestic carrier Indian Airlines would be sold. No finance ministers had yet dared to make a public commitment to privatization; they had all used the more politically correct word - disinvestment. By December, paralysed by a fractious coalition government and his party's drubbing in the regional elections, Sinha had managed to sell only a small stake in a rail-freight company for $53 million. In January, as he prepared this month's budget, he had few options left to plug the large deficit.
  • Sicily is famous all over the world for many reasons. Films such as The Godfather and novels such as The Leopard have brought fame to the Italian island, as well as the worldwide criminal organization known as the Mafia. But its name does not crop up very often in the financial news.
  • His punishing schedule was that of a corporate financier rather than a central banker. In five years as head of the Bundesbank's international relations, Helmut Schieber took an average 10 foreign trips a month to attend summits with bankers, finance ministers and regulators. "Yes, it was depressing," says Schieber of the ceaseless round of aircraft seats, chauffeured cars and windowless conference rooms.
  • Polish managers of a former state-owned company are receiving harsh lessons in capitalist reality. They are on the wrong end of the country's first hostile takeover bid, launched by a British firm with which they were in partnership talks less than a year ago. Worse, Poland's BIG Bank Gdanski, holder of 14% of the stock and a seat on the supervisory board, has not rallied to the target's defence and says it will sell at the best price.
  • It was a big-bang conversion with no modern precedent. Politicians had created monetary union; now it was up to banks to make it work. In Frankfurt, arguably the finance capital of euroland, the changeover was mostly a success. But there were some hairy moments and arguments over who caused a cross-border payments jam. Marcus Walker reports.
  • The devaluation of the Brazilian real has kept emerging markets at the top of bankers' and regulators' priority lists. As the crisis struck, the Malaysian second finance minister was on a tour of Europe designed to gather support for the country's controversial approach - an approach the minister insisted was working and would be continued indefinitely. More than a year on from the start of the crisis, there is still no consensus on what policies are appropriate for these troubled countries.
  • Brazilian telenovelas - the South American equivalent of soap opera - are not noted for their strong take on reality. Fantasy is more their stock in trade.
  • Europe's high-yield market was amongst the hardest hit by the Russian crisis. But as Rebecca Bream reports, the reasons for the market's bloom in early 1998 still hold good. Investors need greater yield and corporate restructuring is expanding the pool of potential issuers.
  • Among the candidates to blame for starting the emerging-markets crisis are leveraged hedge funds, foreign investorpanic, bad IMF advice, overvalued currencies and crony capitalism. A new scapegoat is the reckless Asian corporate, which overborrowed cheap dollars and expanded too fast: its bad risk management scuppered entire economies. Isn't this latest thinking just a plot by the World Bank to impose laisser-faire capitalism on the whole world? Brian Caplen reports.
  • Highly rated borrowers fared better during last year's crisis than lower-rated credits. But spreads on their bonds still widened sharply. The bonds that held their price best were not just those of issuers with little exposure to emerging markets but those that were most liquid. By Luciano Mondellini
  • Investors are shunning emerging markets and wary that the US market is a bubble about to burst. With interest rates low, that makes European equities so much more attractive. But issuers know it could all go horribly wrong. They are rushing to the market before investor sentiment turns sour. And increasingly, as Antony Currie reports, the deals they want executed are block trades, secondary offerings and equity-linked bond deals, not the blockbuster privatizations that were once the mainstay of the market.
  • Following Emu, bond traders are scouring non-euro EU countries for the next convergence play hot-spots. Now that the main convergence-play currencies of recent times - Italy, Spain, Ireland and Portugal - are in the euro club, those non-euro countries that might join the euro over the next few years are attracting attention. Greece has emerged ahead of the UK, Sweden and Denmark as the most popular source of convergence plays.
  • After Brazil, could China's currency be the next to fall? Billions of dollars are said to have gone missing in foreign exchange over the past year - a development that Chinese officials are desperately trying to play down to minimize market jitters over the fate of the renminbi. At the end of 1998, the nation's forex reserves looked impressive at $145 billion. But they had risen by only $5 billion over 1998 despite a record trade surplus and strong inflows of foreign direct investment. Some China specialists calculate that almost $89 billion in trade and investment gains never found their way to the official coffers, despite the country's tough foreign-exchange regulations and central bank controls.
  • It is ironic that the strongest disciples of free markets are often the messiahs of currency pegs, fixed exchange rates and currency target zones. Those who believe the market should set the price for everything reject its decision on pricing international economic input and output.
  • The Russian Federation has defaulted on up to $90 billion-worth of restructured Soviet-era debt, the GKO reschedulings are stalled and Western banks have laid off almost all their Russian workers. February has rarely been kind to Russians, and Muscovites, not the world's most upbeat urban dwellers at the best of times, believe that this one will be the worst for decades. Even so, there are glimmers of hope.
  • Smart investment bankers - the type who managed to turn catastrophe risk into an investment-grade asset class - should be eyeing up the fruits of litigation reform in the UK. By Christopher Stoakes
  • Whenever JP Morgan and Goldman Sachs in London manage to poach staff from each other, it usually leads to a bout of cheering and high-fives in the relevant office. No doubt much of the rivalry comes from the close proximity of their headquarters, which are less than five minutes' walk from each other near Blackfriars Bridge.
  • In a year in which deals of all shapes and sizes were pulled, plaudits go to all equity and bond issuers who were able to complete their deals at all. Some stars of the past - Asian project deals, Latin American corporate bonds and eastern European privatizations - barely made it to the finishing line. But one muscle-clad team of super-athletes swept the board in 1998. This was the year of the telecoms industry: from the stodgiest emerging-market monopoly to the most glamourous builder of fibre-optic networks, telecoms operators were everybody's favourite performers.
  • Leveraged syndicated lending has become hotly fought over in the past few years. Investment and commercial banks are keen to make their names in leveraged buy-outs and investment banks - long leaders on the advisory side as well as in bond and equity finance - seem to be closing the gap on commercial banks in senior lending as well. Firms pride themselves on being able to offer "one-stop shopping" - for loans, M&A advisory and bond underwriting - to their clients.
  • The first month of euro trading has come and gone, and the battle for short-term futures contracts rages on. Liffe, Eurex and Matif - the UK, German-Swiss, and French futures exchanges - have been competing for market share of three-month futures contracts since January 4. Already there have been disputes about which has made the most successful transition to the euro and which is most liquid.
  • In Turkey business patriarchs never die, they simply fade away. In the wings their sons - rarely their daughters - prepare to take over, whether they're entrepreneurially inclined or not. But family-owned business heads are increasingly realizing that survival will depend on more formal structures. A few are even putting them in place. Metin Munir reports.
  • Minos Zombanakis is a pivotal figure in the history of the Euromarket. Known in the 1970s simply as "the Greek banker" (he was reckoned to be the only one of any note on the international scene), he was a combination of financial visionary, smooth salesman and masterful self-promoter. As one rather hostile magazine article remarked about his assault on the syndicated loans market: "It was one part nerve, one part histrionics and several parts pure fluff, but it did the job."
  • The logic of plugging together two industries - insurance and capital markets - is irrefutable and inevitable. But pricing insurance risk and selling it to investors is a painful process, frustrated by a glut of insurers selling their cover too cheaply. The visionaries are positioning themselves for a change in circumstances that could be swift and merciless, like the perils they're trying to insure. By David Shirreff.
  • What do real tennis and climbing Mount Kilimanjaro have in common? Not a great deal, you would think, but Vincent Purton, the 39-year-old managing director of Daiwa Europe's debt origination desk is spending the first week of February heading towards the summit of the Tanzanian mountain, inspired, as he puts it, "by the rather arcane game of real tennis that I play. The professional who coaches us at Hampton Court suggested it last year, and I didn't need much persuading."
  • Banks can only sell risk if investors know exactly what they're getting. Institutions with blue-chip corporates in their loan portfolios won't have a problem, but smaller and regional banks find it almost impossible to sell their own risk in the credit derivatives market. Better credit research would help, but above all, they must learn to sell themselves. By Laura Covill.
  • It's a firm that revels in its sense of history and values its independence. What it does, it does well - clearing, mortgage bonds, niche investment banking and just a little bit of prop trading. Nick Kochan goes inside Bear Stearns and gets a verbal memo from its combative chairman "Ace" Greenberg.