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March 2002

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  • 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?
  • 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.
  • The days of promiscuous big spending on IT may be over for investment banks. However, because the splurge was often ill-directed and uncoordinated there’s still a lot to be done – and spent – to patch up old mistakes, deal with major developments such as T+1 clearance and upgrade neglected back-office systems. Worryingly, most banks still seem unwilling to cooperate with rivals on pooled systems and the development of common standards.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • Six months ago rising oil prices, the bursting of the new economy bubble and weaker financial markets were increasing the dangers of a recession even before the blow of September 11. Although the direct effects of the attacks have been relatively small and sector-specific, the effect on business confidence is likely to be large in the short term. In our latest review of country prospects Euromoney's panel of experts has revised down average global projections for 2002-03 for 79 countries and has revised up 105. On balance, consensus growth forecasts indicate strong resurgence in 2003.
  • Issuer: Napocor International Finance TrustAmount: $500 millionLaunched: February 1 2002, put on hold February 4 2002Lead manager: Bear Stearns
  • 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.
  • 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."
  • 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.
  • 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.
  • Deutsche Börse’s move to take full control of international central securities depository Clearstream highlights the divergence between banks, exchanges and clearers that would like to see an integrated utility-style system of settlement for European securities markets and those exchanges such as Deutsche Börse that see such operations as a way of generating value for their own shareholders.
  • Egged on by vociferous fans, Galatasaray is doing well. Turkey's top football club has not been beaten for 18 home European matches.
  • A greater move towards international accounting standards is certain to result from the Enron furore. But already there are signs of regulatory one-upmanship. And bankers worry that the debate on the rights and wrongs of the Enron affair is quickly giving way to a turf battles and point-scoring between regulators and accounting bodies.
  • If people thought the out-of-court settlement between Unilever and Merrill Lynch had laid the whole affair to rest, they were wrong.
  • 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.
  • Let's hope John Mack is not too downhearted at his failure to lure his old friend Walid Chammah away from Morgan Stanley. It would appear to be the first setback the chief executive of CSFB has had since replacing Allen Wheat last July.
  • The imminent implementation of T+0 settlement for foreign exchange ought in theory to be an all-round blessing for market participants, reducing Herstatt risk. Some banks will, however, fall outside the system, raising the possibility of a two-tier market with differential spreads. Members will also incur new risks.
  • The timing could not have been worse for Portugal's governing socialist party. A month ahead of the elections, when it is already lagging behind in the polls, the EU slaps it on the wrist over public spending, an issue central to both parties' campaigns.