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September 2008

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  • "We have all the signs of emerging markets in the US now – there’s stagflation, growing unemployment, excess debt, poor monetary management – I just wonder when the US will be included in the EMBI+"
  • Of benefit to both the environment and HSBC’s bottom line is the opening of a new internal network of conference rooms by the UK bank, which CIO Ken Harvey says will give "the experience and benefit of actually being in the room with colleagues on the other side of the world, without having to pack a suitcase".
  • A study by quant fund AQR says hedge fund replicators are not necessarily what investors want. The new indices launched by banks such as Goldman Sachs, Credit Suisse and Merrill Lynch are too highly correlated to other asset classes within an investor’s portfolio to add much value, says the study. Furthermore, their inability to capture tactical shifts in hedge fund exposures because of lack of public information means that replications might not keep up with hedge fund moves.
  • Even as they delever, shed assets, raise capital and hoard liquidity against further hits, banks know they must also fundamentally change the rotten underlying business practices that led them to disaster. If they can’t, even those that manage to survive this disaster will fall victim to the next. That’s if the regulators don’t shut them down first. Peter Lee reports on an industry trying to relearn the basics.
  • The greenback revival, driven by ECB recognition that the eurozone is faltering, will be sustained by the narrowing of the US current account deficit, the fall in the oil price and the US pursuit of a soft monetary policy.
  • US long/short fund Andor Capital, spun out of Pequot Capital in 2001, is closing its doors and returning money to investors. The fund manages more than $2 billion in assets. Co-founder David Benton said in a letter to investors that he wanted to devote more time to his family and other interests.
  • Some European banks are coming through the credit crisis relatively unscathed, or even with enhanced market positions and reputations. Never has differentiation been more important.
  • US leaders might ponder the lessons of Venezuela and Iran.
  • Despite a new round of fundraising for distressed ABS, a market floor is not necessarily in sight.
  • MBIA has agreed to reinsure a $184 billion portion of FGIC’s municipal bond book in a deal that reduces risk exposure for the latter and improves the capital position of the former. The solid municipal credits will also improve the risk profile of MBIA’s book. Under the deal, if a credit event is triggered on FGIC, protection buyers have a claim on MBIA for these assets – but there is still some legal uncertainty as to how this process would actually work. In a separate development, FGIC has paid a $200 million settlement to Calyon to commute CDS written on IKB’s Rhineland conduit. FGIC is suing IKB for fraud in relation to the now defunct vehicle.
  • Faced with growing evidence that issuers were gaming the scheme, the European Central Bank has finally tweaked the collateral requirements for its repo liquidity programme. Haircuts for ABS and unsecured bank bonds have been increased, the former up from 2% to 12%. This brings the scheme into line with Bank of England and Federal Reserve rules – but in reality makes ECB rules more stringent as the maturities on offer are shorter. The ECB has also tightened the close-link rules so that ABS collateral for which the seller is also swap counterparty is disallowed. Seller liquidity support of more than 20% has also been axed. The rules are likely to have an impact on smaller banks that have relied on ECB liquidity but analysts at Deutsche Bank calculate that the incremental cost to banks following the haircut change is 50 basis points. This means that the ECB window is still the most cost-efficient funding channel available to banks if maturity is not a consideration. "This change alone is unlikely to compel many banks to return to the securitization capital markets," conclude the DB analysts.
  • With a huge pipeline of covered bond issuance planned for the next few months, much is being asked of investors. There might not be enough of them to go around.
  • Government intervention in financial markets goes against the grain of any US administration. However, it appears preventing closure of the mortgage finance markets is more important than ideology.
  • The SEC and the FSA have both acted too hastily in reacting to short selling. In the UK, the new disclosure rules have compounded the turbulent mood of the market. Neil Wilson reports.
  • David Puth, the former head of FX and commodities at JPMorgan, has resurfaced after nearly two years out of the market. He has been appointed to the new position of head of investment research, securities finance and trading activities for State Street. He will report to Jay Hooley, president and chief operating officer of the Boston-based bank and will sit on the company’s operating group. Puth spent many years at what was originally Chemical Bank, going through several mergers and takeovers to end up at JPMorgan. After he left the bank in November 2006, he founded risk management and advisory group Eriska; he also joined Icap’s board as a non-executive director in November 2007.
  • "Our long-term view remains – we will eventually see 1.60 for cable and parity for EUR/GBP" -Paul Day, Mig Investments
  • Has the credit crunch led even the brightest students to lose all interest in the financial services industry?
  • "For the rest of the bank, we’re actually managing the businesses; with the problem assets we’re not really managing them at all, we’re just managing the accounting"
  • Australian hedge fund Basis Capital is to pay $23 million to investors in two of its funds. The investors put their money into the funds in June 2007, the month investments were frozen because of liquidity problems. Because the money had technically not been invested until September, the investors were able to claim a full refund. Other investors in the struggling funds now being advised by Blackstone will suffer losses.
  • Moscow private equity firm Mint Capital has taken a stake in beer restaurant chain Tinkoff Restaurants.
  • Japan’s Mitsubishi UFJ Asset Management Company and Brazil’s Bradesco Asset Management have agreed to set up a mutual fund that will invest in Brazilian bonds.
  • Venezuela’s president, Hugo Chávez, has announced plans to nationalize the Bank of Venezuela, the largest bank in the country. Chavez has asked for a meeting with Spanish group Santander, which owns the bank, in order to agree a price.
  • Continuing problems are forcing firms to reconsider market timing, the balance between public and private funding and the importance of neglected sources such as retail and corporate deposits. Six specialists debate the issues.
  • It could be the perfect storm – financial, macroeconomic and geopolitical risk are all on the rise. Risk is both where you anticipate it, and where you least expect it.
  • "More business is done here in the sauna after a good round of golf than is ever done in meeting rooms," says a senior manager at a top investment bank in Seoul, perhaps a touch wistfully, when Euromoney’s correspondent asks for advice on networking on a recent visit to Korea.
  • Chief executives need to lead from the front to achieve cross-company support for supply chain management projects and they need to identify the right partners to help them adopt successful strategies.
  • The tables are starting to turn in the Brazilian banking market – for the first time foreign-owned banks have become acquisition targets for locals Itaú and Bradesco, valued at more than $60 billion each, which now dwarf the purchasing power of several of the international banks in the aftermath of the sub-prime crisis.
  • HSBC’s attempted takeover of Korea Exchange Bank has been in limbo for more than a year, pending regulatory approval that in turn depends on the outcome of a court case involving individuals charged with improper conduct in the Korean bank’s original sale to private equity firm Lone Star. With the initial deadline already passed, the Financial Services Commission has said it is still reviewing the case, and Korean banks have said that they too would be interested in KEB. Richard Wacker, the bank’s chief executive, is a 20-year veteran of General Electric brought in by Lone Star in February 2004 to turn the then-troubled bank around. Euromoney spoke to him in Seoul about the frustrations of the delayed deal, his plans for KEB’s future and what having HSBC as a majority shareholder could mean for his bank.
  • Peru’s dramatic rise from market pariah to investors’ darling was capped this year with investment-grade status awarded by Standard & Poor’s and Fitch, opening Peruvian capital markets to huge interest among institutional investors. Ironically, Alan García, the president who made Peruvian debt a no-go area in the 1980s with soaring inflation and bond defaults, oversaw the upgrades in his second term, two decades later as a free-market convert.