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November 2002

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  • "You should always buy a company that any fool can run, because one day, one will." These were the words of one of the world's most successful investment managers, Peter Lynch, speaking at an awards lunch in London.
  • Investment bank research is bad for your health, says one of Asia's top bankers.
  • German banking
  • Large investment-grade corporate borrowers have increasingly turned to securitization as rating downgrades and investor risk aversion have pushed spreads on normal bonds to junk levels. Can asset-backed markets meet these giant issuers’ funding needs?
  • Foreign exchange
  • Nordic mortgage bonds have been tipped as a major growth area for some time. Denmark and Sweden in particular have long-established, stable markets that have been steadily attracting interest from outside over the past few years. Swedish mortgage bonds are not strictly covered, since the collateral loans remain on the issuer's balance sheet. Many covered bond participants see them as still primarily a domestic play with sporadic foreign interest at best. But bankers in the Nordic markets say the paper is attracting more and more demand from non-traditional buyers. The Danish market's long end is made up of callable bonds similar to the most liquid part of the US MBS market. It has long attracted considerable interest from US accounts, which find the callable structure comfortably familiar. In 1997 and 1998, these accounts started taking big tickets in long-dated Danish paper. Many of them were hurt badly by the Danish mortgage crisis. US accounts retain a large share of the market and trade actively, but are no longer net buyers. The high option-adjusted premia that originally attracted them have now fallen slightly.
  • Collective action clauses have been inserted into bond documentation for nearly as long as bonds have existed. They're still completely standard in bonds issued under London law, and have never been an issue when those bonds come to be priced.
  • All the global cash management banks continue to concentrate on the small pool of top-tier multinationals where there are opportunities to cross-sell but where competition is most intense. These most demanding of cutomers are driving down margins. The global players might be overlooking other sources of revenue.
  • Serbia
  • In the unseemly and increasingly desperate scramble by the leaders of Wall Street firms to do a deal with the SEC, Eliot Spitzer and the whole posse of state prosecutors pursuing them over bent research and IPO spinning, common sense was ditched long ago.
  • There was a huge rally in global equities in the middle of October after markets reached six-year lows. The catalyst was the third-quarter earnings reports of US corporations. Most seemed to beat consensus forecasts.
  • The sovereign debt restructuring mechanism is the most contentious proposal ever to come out of the upper echelons of the IMF. It is almost universally opposed by the private sector, most emerging-market borrowers think it a very bad idea indeed, and before it has even been drafted it has already been blamed for tens of billions of dollars of decreased capital flows to emerging markets.
  • Lehman Brothers found itself at the centre of embarrassing public revelations last month when a chef formerly employed by the bank challenged the terms of his dismissal and implied that loose morals were inherent to the firm's culture.
  • How much would you pay to dine with your CEO? Too much and you'll be seen as a creep, too little and you can wave goodbye to that promotion. That's the quandary facing Merrill Lynchers, who can bid for a tête-á-tête with Stan O'Neal - CEO in waiting.
  • Deteriorating credit quality has combined with structural illiquidity in the credit market to produce extreme volatility. For now, small deals from rare borrowers are faring better than large, liquid deals from frequent issuers.
  • The Turkish banking sector is undergoing a revolutionary transformation. For decades the playground of crooked bankers and the politicians and bureaucrats they funded, the sector is now being cleaned up.
  • While many bankers are tightening their belts in the expectation of tiny Christmas bonuses, some are still merrily living it up. One trader flew the flag recently by hiring out the Café de Paris for his birthday bash (house champagne: £350 a bottle).
  • Frank Sixt, chief financial officer of Hutchison Whampoa, spoke to Euromoney’s Chris Cockerill about his company’s aborted euro market bond issue and its plans for developing 3G telecoms technology.
  • Securities lending
  • Banks and opportunity funds are lining up to benefit from an expected transfer of real-estate assets from cash-strapped corporates to investors. There’s one catch – some corporates aren’t in a hurry to sell.
  • Ford has $40 billion in total back-up facilities, with room to do another $5 billion in the unsecured commercial paper market and about $7 billion extra capacity in external ABS conduits. So it can increase short-term debt if need be.
  • What's red, green and disliked by most Germans? Answer: the new - or old - coalition government. In fact, it's something of a mystery who voted for Gerhard Schröder. Most Frankfurters grimace at the mere mention of his name. Just as when Bush won the US election, it's as if Germany has had a momentary lapse of concentration and lumbered itself with a government it didn't really want.
  • Citigroup is the most successful cash management bank in nearly every region of the world. But when asked to rank banks on different aspects of the cash management business, treasurers often rate the likes of Deutsche Bank, JPMorgan, Standard Chartered, and BNP Paribas higher than Citi.
  • Russia
  • Banks are heavily discounting syndicated loans for relationship reasons and taking a double hit when they hedge their risks with more realistically priced credit swaps.
  • At the start of the year Lucine Kirchhoff took a bold position. The price of high-grade loans, she said, was destined to increase: "Look for investors to focus more on drawn pricing to compensate for the appropriate risk they are taking," said Kirchhoff, the head of loan syndicate at Banc of America Securities. It would be a similar story for undrawn costs. Higher pricing ought to have been inevitable given the recession, a rise in defaults, rating-agency downgrades and fallen angels, and the uncovering of corporate frauds. Banks would surely be looking for a much better return for the risks they were taking, which would imply a wholesale change in prices rather than just a slight increase.
  • The sale of a stake in Landsbanki to Samson will take place in two stages. Following the completion of a purchase agreement - due on around November 20 - 33.3% of the shares in the bank now owned by the state will be delivered to Samson. The remaining 12.5% stake will change hands a year later, bringing the state's stake in Landsbanki down from 48.3% to 2.5% by November 2003.
  • The International Accounting Standards Board is planning to change its approach to the treatment of assets in securitizations. But many feel the new proposals don’t improve on the confusion they replace
  • As volumes and margins fall in conventional sales, trading and new issues, leading equity firms are desperate for new sources of revenue.