February 2008

Japanese ECM issuance fell 177% in 2007 to just $25.5 billion and 266 deals. Japanese companies raised just $6 billion in IPOs, a decrease of 68% from 2006 when they raised $18.9 billion.

The credit crunch has opened up opportunities for hedge fund managers with lending capabilities. Helen Avery talks to Arch’s Stephen Decani about his firm’s asset-based lending activities.

Hedge funds are on the verge of large-scale direct recruitment of talented graduates, a recent student-organized LSE alternative investments conference suggests. Neil Wilson reports.

CFTC and NFA are being inconsistent with the rules for futures and forex traders.

Proposals for establishing an EU-wide definition for bank capital have caused a stir in the arcane world of hybrid regulation.

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.

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.

Our annual poll shows which banks are best positioned to benefit from any upturn in the credit market's fortunes.

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.

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.

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.

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.

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.

A strong pipeline of deals keeps ECM bankers optimistic for 2008.

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.

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.

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.

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.

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.

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.

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.

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."

We asked leading debt market officials what products they thought would be hot in 2008.

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.

Electronic broker Icap, the world’s biggest interdealer broker, acquired a 15% stake in the Bolsa de Productos de Chile (BPC) commodity exchange in January. This deal makes Icap the first international investor to have an ownership stake in a Chilean exchange, after acquiring the last three shares that belonged to BPC for Ps400 million ($800,000). This deal values the Chilean exchange at $5.6 million.

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.

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."

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.