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February 2008

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FEATURES
  • No more level playing field as the cost of bank funding goes up

    Banks must come to terms with higher costs of funding, putting some at a competitive disadvantage to their peers for the first time. The worst hit might have to rethink completely how they fund themselves.
  • Banking: European banks go direct to São Paulo

    New York no longer holds the key to success in Latin America for some European banks.
  • No fresh start for capital markets

    For the first time since 2002 debt is a buyer’s market, and investors are getting what they have long wanted: wider spreads. But at what cost?
  • FX debate (part two of two): Towards a golden age for foreign exchange

    Last month the panel examined volatility and the reported demise of the dollar. This month, they discuss the merits of prime brokerage, the weakness of algos and how to generate alpha.
  • Bank CEO ranking

    Which CEOs have created (or destroyed) the most shareholder value? Euromoney's latest ranking shows that, despite the reverses of 2007, most remain in credit with investors.
  • The Sepa revolution quietly creeps in

    Unprecedented co-operation between European banks has, at last, created a single euro payments area. It will transform the cash management business and possibly the whole banking industry. Laurence Neville reports.
  • Greek banks face up to doorstep challenge

    The leaders are busy expanding in the Balkans and beyond in emerging Europe. But will buying more and more on their doorstep prove better than an organic growth strategy in the long term? Chloe Hayward reports from Athens.
  • The greening of Qatar

    Perhaps it’s a feeling of guilt, or an urge to give something back. After all, according to new figures from the IMF, nature has gifted Qatar with oil and gas that have helped it achieve a GDP per capita approaching $70,000.

ALSO IN THIS ISSUE

  • Icap is determined to boost the position of its spot trading platform, but mutually owned venues are at a disadvantage.
  • As the probability of a US recession rises, the best- and worst-performing credits of 2007 reveal the state of play in global economies. Jethro Wookey reports.
  • We asked leading debt market officials what products they thought would be hot in 2008.
  • Former chairman of the Federal Reserve Alan Greenspan has joined Paulson & Co as a member of its advisory board. He will provide advice to Paulson’s investment management team on financial markets in an exclusive arrangement. John Paulson, founder of the event-driven hedge fund, saw assets balloon from $7 billion to $28 billion last year because of correct calls on the sub-prime market.
  • According to prime brokers in New York and London, funds of hedge funds are reducing the number of new managers they are taking on their books, and, in some instances, are reducing their existing portfolios of managers. One prime broker says that some funds of hedge funds have reduced their books of managers by 10% to 20% over the past two quarters.
  • The credit crunch has spurred an increase in the number of new hedge fund launches. Marco Masotti, partner in the fund formation practice at Paul, Weiss, Rifkind, Wharton & Garrison in New York, says he has had an increasing number of enquiries from new managers over the past two to three months. "Some are setting up as they wish to take advantage of the investment opportunities that have sprung up, others are leaving financial institutions to start on their own as they are unhappy with management changes, or bonuses at their financial institutions."
  • Our annual poll shows which banks are best positioned to benefit from any upturn in the credit market's fortunes.
  • Emerging markets Equity indices in emerging markets outperformed those of developed markets in 2007, rising 42% compared with a gain of just 9.4% in developed markets, according to Standard & Poor’s global stock market review, The World by Numbers.
  • The Argentine government under the leadership of Cristina Kirchner will have to reach a resolution with the holdout investors from the sovereign’s debt restructuring of 2005 if it is to avoid financing issues, according to analysts.
  • After a stop-start year of asset-backed securities issuance in 2007, Fitch Ratings expects European emerging market securitizations to perform comparatively well in 2008. However, it says that a prolonged credit squeeze could hit demand for structured bonds. "Borrowers with hard-currency refinancing needs have so far weathered the liquidity crunch remarkably well but their funding needs will become more acute if the international capital markets remain closed for another two or three quarters, and local markets are not deep enough to provide alternative funding," says Jaime Sanz, head of European emerging market securitization at Fitch in London.
  • In a sign of growing economic cooperation between Russia and China, VTB, Russia’s second-largest bank, has become the first bank from the country to receive a licence to open a branch in China. VTB’s Shanghai branch will primarily service Russia-China trade, big industrial inter-state projects and the investment projects of Russian and Chinese companies.
  • The Republic of Turkey, emerging Europe’s most prolific issuer in the international debt markets, made a strong start to 2008 with the reopening of its 2018 6.75% dollar Eurobond for $1 billion.
  • Fund of hedge funds group Financial Risk Management (FRM) has launched a new business to provide seed capital to early-stage hedge fund managers. Group chairman Blaine Tomlinson cites the need for managers to reach critical mass through partner ventures as the reason for the creation of the new platform. The business, FRM Capital, will also provide investment opportunities for existing fund of hedge funds clients. Industry participants say that the number of seeding funds is increasing as entering managers find it harder to attract capital, and as firms such as FRM seek to diversify their business.
  • Net inflows into hedge funds in 2007 were higher than 2006 levels in spite of turbulent markets.
  • "Sudan is probably the richest country in the region. It has the best commodity in the world: water. It also has oil, minerals, cattle, fertile land and human resources. If it can resolve its problems, Sudan has the potential to be a perfect economy." Such is the view of Ahmed Abbas, CEO of Liquidity Management Centre, a Bahraini Islamic investment firm. And if the capital markets are anything to go by, says Abbas, the biggest country in Africa might already have begun its recovery.
  • Structured finance departments have taken a bit of a battering in the past few months but in southern Africa there is still belief in and appetite for the business. The domestic market in South Africa is growing rapidly, partly to meet political pressure to transfer assets to people with little money and no equity. Electricity shortages might well also be a key driver of new deal flows.
  • Redecard, a merchant servicing business in Brazil that Citi holds a majority stake in, plans to undertake a follow-on secondary offering. The announcement came within hours of Citi announcing write-downs of $18.1 billion in the fourth quarter of 2007.
  • The Depository Trust & Clearing Corporation and CLS Bank International have launched a central settlement service for over-the-counter credit derivatives transactions. The service is an automated solution for the calculation, netting and issuing of payments between counterparties to bilateral contracts.
  • CFTC and NFA are being inconsistent with the rules for futures and forex traders.
  • Cognotec, an FX trading solutions provider, has formed a partnership with Saxo Bank. As a result, Saxo will stream liquidity to Cognotec’s RealStream Margin trading platform, which Cognotec developed specifically to target what it calls the professional retail market. In a press release, Brian Maccaba, Cognotec’s chief executive, said: "We are delighted to partner with a progressive bank such as Saxo Bank with its depth of FX experience, and particularly their leading profile in the professional retail trading market."
  • Neal Neilinger is the new global head of credit at Calyon. He is responsible for trading, sales and syndicate in the debt and credit markets product line. He reports to his former boss and colleague Jim Siracusa, global head of debt and credit markets.
  • The list of credit bosses to resign from their positions has grown longer. Grant Kvalheim has resigned as co-president of Barclays Capital, leaving Jerry del Missier as president of the UK bank under the chief executive, Bob Diamond. Kvalheim lost the credit trading book in the autumn to del Missier, leaving him with a somewhat reduced role. John Winter and Peter Goettler, who were part of the team that followed Kvalheim out of Deutsche Bank in 2001, continue in their respective roles as heads of European and US investment banking.
  • A strong pipeline of deals keeps ECM bankers optimistic for 2008.
  • Euromoney has been informed by a source claiming to have been close to an eight-figure deal that cash-rich Saudi Islamic bank Al Rajhi entered into with troubled US bank Bear Stearns just before Christmas.
  • Lehman’s new loan modification programme reveals its pessimistic view of the UK housing market.
  • Bolsa de Mercadorias & Futuros, the Brazilian derivatives exchange, has announced that it will introduce a new electronic platform to trade spot US dollar/Brazilian real. The venture is a joint initiative with the Brazilian Federation of Banks and the Banco Central do Brasil. BM&F says it is currently responsible for the registration and settlement of about 95% of transactions in the domestic dollar/real market. About 85% of this is traded OTC. The exchange says the addition of transparency and easier access to the market will improve efficiency and facilitate the execution of arbitrage and hedge strategies. The platform is scheduled to go live in the second quarter of 2008.
  • Goldman Sachs has taken a minority stake in Kiev-based investment bank Dragon Capital via a share capital increase. "This development is recognition of the professionalism and success of our 120-strong multinational team and of our track record of triple-digit returns on equity," says Tomas Fiala, Dragon Capital’s managing director and controlling shareholder.
  • Central and eastern European issuers are likely to find accessing the international bond markets a challenging experience in the coming months given the continued US-inspired global liquidity squeeze. Speaking at Euromoney’s conference on central and eastern Europe in Vienna, Fokion Karavias, general manager of the global markets division at Greece’s EFG Eurobank, says that on the back of a general flight to quality from emerging towards developed markets all borrowers will face tougher market conditions but that government borrowers should find it easiest to issue. "Sovereigns will need to pay much higher spreads, but they will be able to issue," says Karavias, adding that even potential Euromarket debutantes such as Albania and Azerbaijan could get maiden issues away if they are prepared to pay the higher market clearing levels being demanded by investors.
  • In a signing ceremony witnessed by UK prime minister Gordon Brown and Chinese premier Wen Jiabao, Standard Chartered Bank agreed on January 18 to provide credit to a microfinance organization in China. It is the first time an international bank has backed such a project in China. The bank is to supply an initial Rmb20 million ($2.76 million) to the China Foundation for Poverty Alleviation (CFPA) to support farmers and small business owners. Microfinance initiatives are seen as key tools in the fight against poverty. Providers of microcredit in poor areas get help in reducing their operating costs; the investment banks benefit from being attached to these PR-friendly projects and often make decent returns on their investments. Standard Chartered is no idle investor: in return for its expertise and reach the bank expects CFPA’s assistance to expand its business in rural China.
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