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March 2002

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  • If people thought the out-of-court settlement between Unilever and Merrill Lynch had laid the whole affair to rest, they were wrong.
  • Shareholders in global telecom companies don’t want to hear about Latin American expansion any more. That leaves the way clear for smart, well-financed local operators.
  • A lot is riding on Brazil’s success. It has always been the dominant economy in south America but until Argentina collapsed it did not have to play a leadership role in sustaining investor sentiment about the region. Today Brazil must rise to its economic challenges or be held responsible not only for its own stagnation but for sinking south America as an economically significant continent.
  • Close ties with the US have helped protect Mexico from the problems faced by other countries in the region. However, its future prosperity depends on its being able to learn to stand on its own two feet. President Vicente Fox faces a tough struggle to push through tax reforms.
  • Axa gave its brokers a nasty shock last year. It decided that it was inefficient for local offices to continue to deal with local firms and chose instead to select a much smaller number of global brokers. All of its brokers had to complete a hefty questionnaire explaining why they were up to the job of servicing one of the world’s biggest investing institutions. If relationship banks couldn’t fulfil various criteria, including access to senior staff, they were dropped from the list. And it’s not easy to get back on it.
  • With worries about US corporate credit scaring bond market investors far more than Argentina’s default, emerging-market issues have retained their popularity. Emerging-market debt offers low volatility, rising prices and decent volumes. Latin issuers remain in the vanguard. The only problem is that their bonds are beginning to look expensive.
  • US economic recovery is clearly under way. But is it a profitless recovery? Some bears say so. I don't agree. This year, corporate profits will not rise as much as the consensus forecasts. That's why I reckon that US Inc and the equity markets will recover at a canter rather than a gallop. But they will still rise sufficiently to support a 10% to 15% rise in equity prices by the year-end.
  • Portuguese banks were the golden boys of European finance for years, reaping the rewards of a consumer lending boom. But Portugal has landed with a bump, with GDP growth no longer outstripping the rest of Europe. The banks are suffering, both in wholesale finance and in retail, where intense competition makes it difficult to turn a profit. Even market leader Banco Comercial Português is feeling the pinch. With opportunities for domestic mergers limited, it has expanded abroad, with mixed results.
  • There is huge potential in business-method patents, and the financial sector in the US has begun to realize this. As in so many other areas of intellectual property, Europe is being needlessly left behind.
  • It's a common assumption, in the US and abroad, that Americans believe they have the best financial system in the world and that it is the most open, the most progressive, and the best model for others to follow. But consider this statement from an American institutional investor. "You know, I really don't like the Vorstand-style of governance favoured in parts of Europe," he told Euromoney last month. "But maybe it does have some advantages over our system." His beef is simple: "The US CEO has become more and more the fox guarding the hen house," he explains. "And he is enriching himself and his executives in the process. More and more companies are being run for the benefit not of the shareholders but of the people running the firm."
  • The US is in recession, or, at best, slowly coming out of it. As with all recessions, some things remain constant. First, company executives, bankers and investors generally don't want to admit there is a problem. They'll convince themselves that there's a new dynamic in the market that this time will make recession impossible, avoidable or at least short-lived. They'll hold off sacking people. They'll blame it on another sector of the market - in this case, they say, it started with the bursting of the tech bubble in April 2000 - and swear it won't affect them. And they'll refuse to take action to protect their companies, such as shoring up balance sheets, because they look back with nostalgia to the time when their stock prices were higher - two weeks ago, two months ago, six months ago...
  • Investment bank research has taken a further battering with Schroders, the asset manager, criticizing the role of analysts in the new economy bubble.
  • Convertibles bankers are fretting about the lack of issuance so far this year. It’s hardly surprising, it was one of the most active markets in 2001. Some are hoping that the need to raise money quickly will help boost volumes but issuers may prove cautious.
  • After years of complaints from regulators and private-sector rivals that Germany’s state banks are taking unfair advantage of public guarantees, the issue is in sight of being resolved. The EC has decreed that the Landesbanken will have to do without this subsidy within three years. Most state bank officials are confident that they can find new ways to compete but others are not so sure.
  • Canada’s secretary of state (international financial institutions)
  • Privatization in India has accelerated under firm government leadership but the process has been complicated by doubts about the involvement of state companies as buyers and government provisions to prevent monopolies developing. Foreign buyers have been notably absent, not least because of restrictions on the size of their holdings and other government provisions. Looming in the background is also the threat of a growing populist political tendency.
  • Two years ago the asset management division of UBS was facing an uncertain future. With figureheads Gary Brinson and Tony Dye gone it was time for new faces to take the lead. As value investing has come back into favour, performance has turned around and now UBS has done the logical thing, uniting the operation under one banner. Where next for UBS Global Asset Management?
  • As German media empire Kirch begins to buckle and telecom firms are again making headlines for all the wrong reasons, contingent liabilities are suddenly a hot topic for credit fund managers. What’s particularly worrying them is the number and size of put options that might force cash-strapped companies to overpay for assets.
  • It's one of finance's most elite clubs, though its members don't accept that it exists. It's made up of the handful of heavyweight economists who advise governments in emerging-market crises while holding down senior positions at the investment banks that lend money and arrange financing for these countries. But Argentina has exposed the limits of their power and raised questions about whose interests they're serving.
  • Chairman, International Accounting Standards Board
  • Enronitis
  • Seasoned international bankers believe that changes are now necessary in the area of off-balance-sheet financing - an activity that has exploded out of all recognition in the past decade or two. "Deregulation started 20 years ago and has gone way too far," says Minos Zombanakis, a well-known former Euromarket banker who is now an international financial consultant. "To allow off-balance-sheet financing of such enormous amounts is ridiculous. Banks use off-balance-sheet structures all the time to avoid capital adequacy." He adds: "The whole idea of off balance sheet is wrong. Consolidation is a necessity. You can use any kinds of structures during the year that you want, for administrative purposes or whatever, but when it comes to reporting, you must consolidate. That is the only way to protect the investor."
  • Derivatives can be used to hedge risk, to speculate or, unacceptably, to cook the books. That those involved in the financial markets can simultaneously fear credit risk and the use of instruments to allay it suggests that they need to identify derivative users’ intentions more clearly.
  • Enronitis is spreading fast. How virulent it proves to be, and how quickly the contagion can be contained, is anyone's guess. But its chief symptom - the fear that companies have been systematically misrepresenting their accounts through off-balance-sheet financing, special purpose entities and minimal disclosure - will not be easily suppressed. US regulators hope a fresh dose of rules will provide a remedy. Others say more rules will only mean more loopholes and that what is needed is a complete overhaul of the requirements for company reporting, auditing, governance and analysis worldwide. Only then can confidence in the system be restored, they say.
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