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March 2008

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LATEST ARTICLES

  • Published in conjuction with: ABN Amro - BNP Paribas - Citi - Commerzbank - Deutsche Bank - Fortis - HSBC - ING - Rabobank - SEB - Société Générale - Standard Chartered
  • The effects of the sub-prime crisis are spreading and could cost 2.5% of world GDP. Emerging market economies will not be immune.
  • ABCP conduits suffered a reputational battering as a result of last summer’s liquidity freeze in the commercial paper market. However, if events in Mexico are anything to go by the concept has survived. In late February, Deutsche Bank was poised to launch the first Latin American ABCP conduit in Mexico, a diversified multi-seller vehicle dubbed Aztlan. Named after the mythical place of origin of the Aztec people, Aztlan has been set up to invest in various peso-denominated receivable pools, including trade receivables, future flow receivables, mortgage loans and consumer loans. Crucially, given the problems that this and the structured investment vehicle sector have wrestled with over the past six months, the conduit is supported by a 100% liquidity facility from Deutsche Bank. "I think that one of the most compelling features about this structure, unlike an extendible programme or a SIV programme, is that this conduit is afforded a traditional liquidity facility," says Alberto Santos, a senior director at Fitch Ratings. "The lack of liquidity facilities was at the forefront of the funding issues experienced during the second half of 2007. The structural features within this conduit, including the liquidity agreement, are expected to mitigate market disruption or timing risk for this conduit. Typically, liquidity facilities can be used to pay maturing commercial paper or to cover timing mismatch between assets and liabilities of a multi-seller asset-backed commercial paper conduit."
  • Hugo Chávez is trying to commit Venezuela to 21st century socialism. In the meantime, private financial services are booming. Buoyed by the oil price, Chávez’s policies keep pumping out money. But can left-wing policies and capitalism work an economic miracle in the long term?
  • Large Latin American companies with substantial exposure to foreign investment are adapting rapidly to the need for good corporate governance and receptive investor relations. But there is still a hard core of resistance to change from family-centred businesses. John Rumsey reports.
  • Geert Vinken, global head of syndicate at Barclays Capital, has retired. Vinken will be replaced by Mark Bamford, head of US syndicate. Vinken held the global role since 2000, having joined Barcap in 1998.
  • Far from turning a corner in 2008, the market looks set for a few tough months yet.
  • Understanding the mark-to-market meltdown
  • As their peers in Europe and the US struggle to adjust to the world post sub-prime, Japan’s megabanks find themselves in the glow of unaccustomed financial health. But how do they put their new-found advantage to best use? And can they ignore the demons that caused such huge mistakes in the past?
  • Many of the delegates at an industry conference in Nevada seemed blind to the real world beyond the securitization desk.
  • Funds that offer private banking clients’ portfolio returns are being launched in March by the creators of the FTSE Private Banking Index series.
  • Eloy Garcia spent 35 years at the Inter-American Development Bank, most recently as a treasurer, before retiring last year. Now a professor at Johns Hopkins University, he tells Sudip Roy of the enormous challenges the bank and the Latin American region have faced and the progress made.
  • Operating company securitizations had to take a back seat to real estate as UK corporates rode the real estate boom in recent years. But with commercial property valuations in free-fall and the hybrid CMBS market dead in the water are opco/propcos about to make a comeback?
  • The UK Financial Services Authority has questioned the spread of derivatives-based trading strategies, such as 130/30, by traditional long-only managers. The increasing use of derivatives poses a "range of risks", warns the FSA.
  • Icap has announced that it has upgraded its EBS spot FX platform, making it faster and adding enhancements. The company says that as a result, global deal times on the platform are now 75% faster than they were a year ago. Intra-regional deals are-now completed on average in five to eight milliseconds.
  • LATIN AMERICA ONLINE EXTRA: Mexico’s structured finance market continues to grow on the back of its housing boom.
  • Two SIVs endured very different fates in February. On February 21, Dresdner Bank announced plans to shore up its K2 vehicle, providing liquidity support to the $19 billion vehicle as it restructures. But parent company Allianz has confirmed its plans to wind the vehicle down by the year-end. K2 runs three portfolios, one of which has entered a restricted operating period. Standard Chartered, however, has walked away from its SIV, Whistlejacket, which entered receivership on February 11 and was teetering on the brink of default by February 21.
  • Infrastructure financing has become synonymous with Brazilian president Lula’s second-term government. As the country enters the first stage of its largest ever hydroelectric project there is a growing demand for funds that the local market is struggling to source. Chloe Hayward reports from São Paulo.
  • Marcus Browning has resigned from Citi, where he recently took up a new role to build a proprietary team to trade volatility. He is believed to be headed for a position on the buy side. "We are disappointed to see Marcus leave, he has been a profitable trader for us and he has been instrumental in building FX options into the strong business that it is today at Citi. But we understand that he has long harboured a desire to work on the buy side, and we wish him success in the future," says James Bindler, global FX options head at Citi.
  • Two of the leading banking groups in central and eastern Europe, Austria’s Raiffeisen International and Italy’s UniCredit, have demonstrated that there is continued investor appetite for structured finance assets from the region with the launch of pioneering transactions.
  • Credit Suisse is building its investment banking presence in the Andes. The Swiss house is adding an executive in Bogotá and is on the lookout for a person in Lima to bolster client coverage. The group has been aggressive in the region for the past 12 months and wants to consolidate its position. Credit Suisse took part in a series of high-profile deals in 2007, including the $2.8 billion privatization IPO of Ecopetrol, as well as deals for some first-time issuers such as Peruvian fishmeal company Copeinca.
  • The precipitous fall in UK and continental European property values – in some cases 20% and higher – in the months since the sub-prime crisis began to bite has put pressure on a handful of commercial mortgage-backed securitizations. Refinancing risk is the greatest spectre in the CMBS market, with some deals facing dire consequences if banks remain tight-fisted with their cash in the next 12 to 18 months.
  • Anyone who follows the travails of England’s football, cricket and rugby teams should easily have predicted Northern Rock’s troubles.
  • The internet campaign to raise €5 billion to save the career of rogue trader Jérôme Kerviel, launched on social networking site Facebook, has got off to a slow start, with only 2,095 members so far having pledged €1 each towards the cause.
  • Inflation, far from being a thing of the past, is back in the forefront of investors’ and issuers’ minds. The increased use of innovations such as liability-driven investment means a rise in demand for inflation-linked products. How are the markets responding?
  • Exchange-traded funds backed by physical gold are to be launched on the Tokyo Stock Exchange, following last August’s debut on the Osaka exchange of ETFs backed by bonds linked to the price of the precious metal. Japan’s investors have long had an affinity for gold: it is the only country where buyers of gold-related options contracts frequently exercise their right to delivery, according to Itsuo Toshima, regional representative of the World Gold Council. It is also the only country in which gold accumulation plans, whereby investors gradually acquire small amounts of the metal through diligent monthly payments of as little as ¥3,000 ($30), have succeeded.
  • The Indian stock market is in free fall, but on the sub-continent that story has had to take second billing to the forthcoming Indian Premier League 20/20 cricket tournament set to take place in April.
  • Banker: "We looked at SG, but the integration would have been very difficult and, in any case, the French don’t like to sell to foreigners"
  • Brazil is notorious for many things, caipirinhas, carnival and beautiful beaches... but in the mind of one Euromoney journalist Brazil also breeds a special type of PR who can invent some of the most original excuses for delays to meetings.
  • "On the day the Jérôme Kerviel story broke, we had two options for the lead story on the main news bulletin: SG, or the official inquiry’s report on the maltreatment of Iraqi prisoners by British soldiers. It had found that the abuses were isolated incidents rather than systematic failures. A bit like SG claimed..."
  • Structured note sellers had high hopes that property-linked pay-offs would be a big revenue generator in the UK. However, recent real estate upheavals have cast a dark cloud over the market.
  • GSO Capital Partners intends to expand now it has the financial clout from its sale to Blackstone. The leveraged finance specialist has hired Najib Canaan, the head of asset-backed securities at Brevan Howard. Former colleagues of Canaan from his days at Donaldson, Lufkin & Jenrette founded GSO.
  • Marking everything that is complex down to zero, because markets are illiquid, does not seem to be a particularly equitable or sensible way of going about things. And that’s before you even consider the way the marking malaise is contributing to systemic risk.
  • Latin American bankers appear confident that the region can continue to avoid the worst of the US contagion.
  • Chinese banks face a potential corporate defaults crisis for the first time in five years.
  • Fitch’s proposed new methodology will tighten CDO ratings, and Moody’s is considering abolishing its current ratings scale altogether.
  • Private placements are becoming an increasingly common route for emerging market companies seeking to tap global debt markets.
  • Anticipation of the much-discussed but now postponed launch of the European residential mortgage-backed securities index (ERMBX) is behind violent swings in spread levels on single-name credit default swaps on RMBS tranches. Markit, ERMBX’s owner, announced that the index’s debut has been delayed because of market volatility. That volatility, in fact, has been caused by buyers of protection on single-name CDS referencing prime RMBS AAAs, say market participants.
  • The UK government’s actions and intentions remain confused. It is time to end the uncertainty.
  • Tough talk by the regulators might bear fruit for the monolines.
  • The Japanese megabanks claim there are no shocks to come on the sub-prime losses front. If true, it’s a big leap forward for transparency.
  • It seems they may be using support to grow balance sheets rather than to roll funding.
  • As an agreement between FXall and ITG shows, multi-asset platforms can be created virtually.
  • Six months into a credit crunch there are few signs of an improving outlook for non-government bond markets. It is a signal equity investors would do well to heed.
  • Argentina’s asset-backed securities market shows no sign of slowing down but the sub-prime crisis has killed off the country’s nascent mortgage-backed securities market.
  • Amid all the bad news surrounding the world’s best-known banks, one institution can hold its head high after its latest results.
  • Lebanon still has no president, and now its public debt has been downgraded.
  • The reporting season in the Middle East this year has been an incongruous affair. There has been record revenue growth as the economic boom continues but some banks have had to be content with much smaller growth in their profits.
  • The financial services sector in the former Yugoslav Republic of Macedonia looks set to remain a magnet for foreign direct investment thanks to growing economic and political stability.
  • The Venezuelan president, Hugo Chávez, sent a calming message to US motorists this month, reassuring them that Venezuela is not about to cut off oil shipments to the US.
  • Citi has hired Jaime Yordan to head its Latin American banking business. Yordan comes to the bank from CDK, a New York alternative investment fund, where he was advisory director. At Citi he will be vice-chairman of global banking for Latin America, reporting to Manuel Medina Mora, chairman and CEO of the business. He will also report to Raymond McGuire and Alberto Verme, co-heads of investment banking.
  • Central and eastern Europe is by no means immune to financial woes, strong economic growth levels notwithstanding.
  • Companies are beginning to look to their neighbours for investment flows.
  • Foreign banks continue to eye expansion opportunities in Kazakhstan, despite the cloudier outlook for the central Asian republic’s financial sector. South Korea’s Kookmin Bank is in talks with Bank CenterCredit, the sixth-largest Kazakh bank, with a view to taking at least a 30% stake. UniCredit is looking to finalize its $2.2 billion purchase of ATF Bank, Kazakhstan’s number four player. But the Italian bank has become embroiled in a legal dispute with US hedge fund QVT Financial, which has accused it of abusing minority investors’ rights. Finally, a Russian investment bank is reported to have built a 10% to 15% stake in the country’s largest bank, Kazkommertsbank, on behalf of an unknown party, prompting further takeover speculation.
  • From a subsidiary of an English public school to a UAE migrant labour camp: diversification can hardly be said to be lacking at Evolvence Capital. The Dubai-based alternative investment group is reportedly planning to market bonds backed by commercial mortgages worth up to $700 million in order to kick-start a $1 billion Reit. Aside from a migrant labour camp, the Reit, the company’s first, will also contain a warehouse and offices. Evolvence is apparently aiming for the CMBS to be sold in the fourth quarter.
  • February 11 was supposed to be so much fun for Anil Ambani. The billionaire younger son of the late Indian industrialist Dhirubhai had just floated his latest investment vehicle on the Mumbai stock exchange. Reliance Power’s stock sale was a cracker: sold in less than 60 seconds, its mid-January roadshow was a whopping 73 times subscribed, sucking huge chunks of liquidity from the system. Investors scrambled to buy paper linked to India’s latest infrastructure play – a company so shiny new that its valuation is based on a dozen huge power plants that won’t come online until 2012. Yet Ambani’s party, held at his plush Mumbai residence, turned out to be more wake than celebration. In the few weeks since Reliance Power’s roadshow, India’s markets tanked. The local benchmark Sensex index lost more than 20% in the five weeks to February 12. Several infrastructure-related IPOs were also pulled in early February, including Indo-Dubai real estate joint venture Emaar MGF, whose initial stock sale was slightly less than 90% subscribed when it was pulled.
  • Nobody expects it to get any easier, especially if January’s figures for Europe and Asia are any indication of the future, says Neil Wilson.
  • Independent M&A boutiques are sensing an opportunity in Japan as the country’s top corporate names increasingly look to firms not tied to large commercial banks when awarding cross-border mandates.
  • Distressed seems the right route to take.