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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.
  • "Why did I tell you that? Please, please forget that I mentioned it," a chief wailed.
  • 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"
  • Today’s long-term rise in agricultural commodity prices is different from previous episodic spikes. Higher prices are having knock-on effects on companies in the sector, as well as on farmers and the poor, and causing a re-evaluation of business models. Peter Koh reports.
  • Japan’s agencies have long been dependable if staid issuers, with their government backing and tendency towards regular benchmark issuance providing a steady source of bonds yielding 15 to 20 basis points more than Japanese treasuries. Now they face change: in a series of reforms aimed at reducing government involvement in public finance, Development Bank of Japan (DBJ) is to be privatized and Japan Bank for International Cooperation (JBIC) is merging with a group of other government finance institutions to form a new firm called Japan Finance Corp. Their paths will diverge dramatically: JBIC will continue to enjoy government backing and is thinking only of tinkering with its borrowing routines by offering more benchmarks. DBJ is striking out on its own as an investment bank, and aiming rather high if management are to be believed. DBJ, a regular benchmark yen issuer in the international markets since 1960, is to begin to be privatized in October and will gradually reduce issuance of government guaranteed bonds from the present ¥190 billion ($1.9 billion) to a projected maximum of ¥160 billion in financial year 2008.
  • One of the puzzles of Islamic finance is how Indonesia, the world’s most populous Muslim nation, has been so utterly left behind in its development. Nearby Malaysia has evolved the most sophisticated regulatory environment for Islamic finance anywhere in the world and, after building an admirable domestic base, has now opened its doors to foreign entrants. Several Gulf states, notably Bahrain, have built centres of excellence around Shariah-compliant finance; and even less-developed nations such as Pakistan are making up for a slow start and witnessing a boom in this growing area.
  • The BarclayHedge CTA Index ended July up 7.08% year to date, outperforming the aggregate hedge fund index by more than 10%. The Barclay hedge fund index, however, returned –4.45% up to the end of July. Returns such as these are encouraging investors to allocate to CTAs away from other strategies, say managers.
  • 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.
  • Banks are booming in Nigeria on the back of oil revenue inflows. But solutions to some of the country’s problems – particularly the need for infrastructure development and a reversal of falls in oil production – remain stymied by an inflexible political system. Rupert Wright reports.
  • 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.
  • Iran’s banks have had their access to international liquidity curtailed by sanctions imposed by the US. This photo, of a Bank Melli cashpoint, suggests its management may have gone a little too far in protecting their deposit base. Either that, or perhaps the marketing department got the wrong end of the stick in a drive to attract high net-worth individuals?
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