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March 2001

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  • One of the great gainers from falling global interest rates will be emerging market financial assets - though not everywhere. I've just visited one emerging market that should outperform this year: Brazil.
  • For the first time in almost a decade Latin America’s faithful companion – a strong US economy – will be absent this year. It’s an eventuality that the finance ministers and central bank governors of Latin America have been worrying about for years. They have fretted over how their economies will respond to reduced demand from American importers and how their finances might be disrupted by collapsing confidence and increased risk-aversion in the US. Yet with America’s astonishing growth finally appearing to falter, private-sector capital has flowed abundantly since the start of 2001. Perhaps investors into the region are just taking a short-term view on US interest rates. Political risks remain the medium-term worry.
  • The Editor
  • It's easily done - a typing error slips through unobserved on your computer as you tap frantically on your keyboard. But such errors can cost thousands, even millions of dollars, if you're a bond trader. And traders say the risks of expensive and embarrassing mistakes occurring are made even greater by the lack of standardization among electronic trading platforms.
  • CSFB hopes "to get the orthodox, corporate listed exchangeable bond structure working in Japan", but certain obstacles are making this and other sophisticated equity capital markets techniques difficult to establish.
  • One of the biggest talking points in the Basel accord is the proposed charge for operational risk. But devising a system for monitoring and measuring operational risk that is subject to external review presents quite a challenge.
  • The news coming out of Japan has for a long time been wholly discouraging. Its economy has been on the operating table for the best part of 10 years. The government, unsure, unable or unwilling to make use of the scalpel, resorts to placing band-aids over gaping wounds. The cauterizing effect of injecting trillions of yen into the ailing system is also wearing off. Intermittent signs of recovery often prove no more than false dawns. And the country is running out of its self-prescribed medicine. But there are going to be some winners – quite possibly the foreign investment banks. As companies take it on themselves to restructure, or are forced to, those familiar vultures are circling overhead.
  • The message is clear - China rules, OK?
  • The Portuguese bond market is caught in a pincer grip. More liquidity is required to attract foreign investors but that can only be achieved if the trend for domestic investors to move to other euro markets is at least partly reversed. Some success in improving the situation has been achieved but there is much still to be done.
  • The jaws of a trap are closing on Europe’s telecom companies. Credit rating agencies and debt providers will punish them unless they reduce the huge debts they took on to build in new markets. The telecom companies have promised to do this by floating subsidiaries and selling assets. But the very equity investors that encouraged them to leverage up and go for growth won’t buy these now. The banks won’t lend either and more downgrades are likely. The scales have fallen from debt and equity investors’ eyes. Where once stood, solid, dependable, utility-like incumbents, they now see risky, new-economy companies that have bet heavily on unproven technology and have limited access to the funding needed to make it pay. The telecom companies may have to take drastic action in order to survive.
  • Allen Wheat must sometimes wish he had never done his big merger. CSFB's chief executive officer was the driving force behind last year's acquisition of Donaldson, Lufkin&Jenrette, widely adjudged one of the least logical deals of the year.
  • France Telecom has set a troubling precedent for all those telecom companies that were desperately hoping to turn to the equity markets to raise funding and reduce their leverage.
  • A joint venture that can only be described as a success, Nikko Salomon Smith Barney is a rare creature, and other banks in Japan are green with envy.
  • Participants in Chunghwa Telecom's on-off American depositary receipt (ADR) issue are playing a game of bluff and double bluff as they amass support for a dignified climbdown on the deal's pricing stalemate.
  • Despite investor demands for tighter dot com management controls, B2B and B2C companies still have little awareness of their exposure to legal risk By Nigel Page
  • When the new Basel proposals come into force in 2004, the effects will be felt throughout the financial system. Corporate and sovereign borrowers should see their borrowing costs increase or decrease as a result of the change in bank asset weightings.
  • Brazil's Novo Mercado is Bovespa’s latest attempt to bring the country's Brazilian equity markets up to western standards of transparency, liquidity and governance. It is modelled on Germany’s Neuer Markt, but so far hasn’t had any listings.
  • Never bet against the Fed. That's the advice many in the US are giving at the moment. It forms part of their core argument that the US cannot be heading into recession, because the Federal Reserve, and especially its chairman, Alan Greenspan, is on the case.
  • The IMF is making changes to pacify the Bush administration after new US treasury secretary, Paul O'Neill, sounded a note of scepticism about the role of supranational organizations in the capital markets. O'Neill stated on February 15 that he attaches particular priority to a "transparent and accountable" IMF. O'Neill sees the IMF's role as one of a watchdog in the markets, alerting governments to growing problems before they fully develop.
  • Argentina is now number eight in a quarter-trillion dollar stream of rescue packages to bolster the credit of threatened emerging economies. Mexico was the first in 1995, recipient of what was supposed to be a one-time $50 billion ransom for world stability. But that failed to factor in the next round of play. Instead, crises have impacted more often and with greater force and will continue to do so as past example teaches the markets that speculation is protected by a G7 guarantee. Adam Lerrick proposes that the private sector should provide the first line of defence with standby financing subsidized by the IMF as a global public good
  • London hosted the first worldwide conference of central counterparties last month to discuss developing a system of seamless global clearing.
  • Prescient, a pioneer of direct debt issuance over the internet, intends to expand into other products in the coming months, with the next target being certificates of deposits in the US.
  • Accounting for some 90% of dealer-to-customer trading in US government securities, TradeWeb is the most successful internet bond dealership yet established.
  • David Clementi, deputy governor at the Bank of England, says the use of credit derivatives in securitization poses a threat to capital market stability.
  • All the online bond trading platforms that are likely to emerge have already been announced. That already seems to be too many. One merger has already taken place and others will probably follow soon.
  • Morgan Stanley is making its latest attempt to woo UK institutions with the launch of its new multi-asset-class product.
  • They started by trying to update the crude minimum capital requirements for international banking established in 1988. But the Basel Committee have been seduced by a new idea: let banks regulate themselves and get the market to police the banking system. Can we rely on the models banks use to calculate their capital? And do the regulators really understand what the banks are up to?
  • Merrill Lynch is reshuffling its European investment banking division to create a new structured credit unit.
  • In the past Euromoney’s country risk ratings have been reliable lead indicators of dips and surges in the world’s economic cycle. Six months ago the global economy looked in fine fettle, underpinned by favourable commodity prices and strong growth in developed countries. Financial markets are fearful this is about to change. Analysts’ forecasts for economic performance are noticeably lower than in September’s survey. But it’s not all doom and gloom. Research by Damon Ivanics and Andrew Newby
  • The last round of deal-making in Portugal’s banking sector has now come to a halt. Another round of consolidation may follow, as the newly-merged banks continue to eye each other.
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