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November 2008

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  • Citadel has hired Rohit d’Souza, former global head of equities and alternative investments at Merrill Lynch, to expand the firm’s capital markets business. Citadel’s capital markets businesses execute and route more than 30% of average US listed equity options trading volume, and more than 8% of average Nasdaq and NYSE equities volume.
  • Under pressure from investors to put money to work, private equity firms are reconsidering the structure of their investment strategies.
  • Giulio Tremonti, Italy’s finance minister, caused something of a PR nightmare when he announced at a G8 meeting in Washington that he would consider banning hedge funds in Italy. He added that hedge funds were opaque and problematic. "Clearly he is crazy," says the head of a prime brokerage. The Alternative Investment Management Association and the Managed Funds Association were more diplomatic, responding jointly: "It is too easy to point a finger at an industry that is misunderstood; hedge funds are not an appropriate scapegoat during a crisis that was caused by failures in the regulated banking system. The hedge fund industry in Italy is a model of successful regulation, provides excellent risk-adjusted returns for investors and is an important source for job creation. It would be a serious mistake to consider eliminating these innovative private pools of capital that are, in fact, an essential source of capital to investors, to Italy and to the global economy."
  • News that ICE is to relaunch its FX contracts gets a cool reception.
  • Hedge funds are resorting to fee cuts in an attempt to discourage investors from redemptions. Ramius Capital, which has two funds totalling $11 billion in assets, reduced its incentive fee last month from 20% to 15% for current investors who agree to leave their money in its funds. Those investors would enjoy the lower fees until the end of 2010. Investors that add capital won’t pay an incentive fee on the additional funds until the beginning of 2010.
  • Almost two-thirds of asset managers at buy-side firms in the US believe the continuing credit crisis is having a big impact on the trading of over-the-counter derivatives, according to research and consultancy firm Tabb Group. Meanwhile, 57% say the leading impact of the credit crisis is an increased focus on counterparty risk.
  • Seesawing markets set a number of records over the four weeks between mid-September and mid-October, including:
  • Apparently, you can learn everything you ever wanted to know about investment banking in just four weeks.
  • The BBC has launched a new series in the UK that seems eerily well timed considering the current financial situation. Little Dorrit, which premiered on Sunday October 26, is the story of a family that has fallen into debt and lost its house thanks to the overly aggressive lending policies of banks on the brink of world recession.
  • "This is a profound ethical issue. These are very sophisticated operations where the counterparty was not a hedge fund – it was not even a financial institution. Should a grocery chain be selling volatility protection?"
  • "This is worse then a divorce – I’ve lost half my net worth but I still have my wife!"
  • The Loan Market Association held its inaugural conference in London on October 16. It was packed meeting of market participants looked for reasons to be optimistic amidst the gloom. The programme featured panel discussions designed to shine some light in the darkness: how to revitalize the primary market; where the liquidity safe havens are; how to invest in distressed debt.
  • In the September issue of Euromoney, in an article about Turkey entitled It’s about the journey, not the destination, we wrongly attributed a quote to Ceren Akdag of Yapi Kredi. We would like to point out that these comments were not made by Ms Akdag nor anyone else at Yapi Kredi, and apologise for the error.
  • The huge losses being reported by corporates from emerging markets around the world suggest that not all is as rosy in FX as might have been reported.
  • Investors in convertible bonds have been washed out by the storm in debt, equity and derivatives markets, so potential issuers are having to look to other buyers.
  • The collapse of Lehman Brothers has made investors wary of derivatives-based investments, but the US structured notes industry remains confident the market will grow.
  • Bank of America is due to close its acquisition of Merrill Lynch in March 2009 but it is still not clear what it plans to do with Merrill’s Latin American business.
  • Pension system nationalization announced last month brings country ‘closer to the abyss’.
  • Costa Rican pension funds are in desperate need of more local investable securities, according to senior bankers in San José.
  • Central bank governor reveals the extent of intervention required by the FX losses of a Mexican retailer.
  • Hungary reached agreement on a $25.1 billion rescue package last month from a number of multilaterals, including the IMF. The money will be used to help Hungary shore up its financial system, battered by the international crisis. Hungary’s reliance on external debt has made it especially vulnerable with the forint down 20% against the dollar and euro in the past month.
  • In late October, the upper house of parliament in Kazakhstan passed the latest amendments to a law designed to bolster confidence in the central Asian republic’s banking sector, which has been buffeted by the global credit crunch. This, in turn, has choked off the supply of cheap foreign currency debt that had fuelled the rapid expansion of Kazakh banks’ networks and lending portfolios in recent years.
  • As the global financial crisis begins to take its toll in Latin America, several banks are starting to look towards private equity opportunities. "Investment banks are very creative at finding ways to charge fees," says Matt Cole, managing director at North Bay Equity Partners, a Latin America focused private equity house. "In 2006/07 the investment banks encouraged companies to list on the stock exchange. Now the banks are starting to pitch private equity deals rather than public equity deals." Antonio Neto, debt banker at HSBC, says: "It makes sense for the investment banks to consider private equity investments when the capital markets are so quiet."
  • Venezuelan President Hugo Chavez said last month that oil prices, which have dropped by half in the last few months, will probably keep falling as the US falls into recession.
  • Mid-caps starved of operational and growth capital have new lenders.
  • 63,300,000,000 the amount in dollars of equity capital raised by financial institutions in the third quarter of 2008. The quarterly amount is the second highest on record after the second quarter of 2008, when financial institutions raised a record $109.1 billion. Finance sector ECM deals accounted for nearly half of the total volume of transactions in the third quarter.
  • IMF loan may not be enough to stave off banking and currency collapse.
  • Mitsubishi UFJ Financial Group closed its $9 billion investment in Morgan Stanley on October 13, ending speculation that the deal might not go ahead. The terms of the deal were more favourable to the Japanese institution than had originally been agreed, reflecting Morgan Stanley’s troubles. Rather than spending $3 billion of the total on ordinary shares at $25.25 each and the rest on convertible preferred shares with a conversion price of $31.25, MUFG will get a total of $7.8 billion-worth of the convertible preferred shares converting at $25.25 and the remaining $1.2 billion in preferred shares. The new deal offers substantially more protection for MUFG on its investment since preferred shares offer a fixed yield and their holders rank above common equity owners.
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