In the summer of 1969, the Eurobond market was in a real mess. It had grown rapidly over the previous six years, with the annual volume of new issues soaring from $148 million in 1963 to $3.1 billion in 1968.
But clearing and delivery systems had failed to keep pace with the proliferation of paper—the bonds were still being physically handled in New York — and the market itself had grown lax and greedy, nourished by the fat profits then available. Bernie Cornfeld, Robert Vesco and Equity Funding Corporation, among others, were able to bamboozle investors and bankers alike until their downfall restored a sense of reality to the market.
The market was dominated by a few houses and individuals — the major American and Japanese banks of today had yet to arrive in force — and the spreads were wide. Swiss banks were the major buyers, hungry for tax- free bearer bonds for their very private clients. The US imposition of foreign investment controls in 1968 had driven major US corporations to the Euromarket in search of capital, opening the floodgates, and their paper was eagerly snapped up. “I think it was at that time that you got this urge, this need, mania among people involved in the business to get their names on the tombstones, in order to get some of the paper,” says Stanley Ross, then with Kidder, Peabody. He recalls a Gillette convertible issue which generated demand among Kidder, Peabody’s European clients for about four million bonds; the firm in London was only allocated 35 bonds by its New York head office because of shortage of supply. Meanwhile, by 1969, Euro- clear had just been established to help solve the clearing crisis; the Association of International Bond Dealers was formed, and the first Eurodollar floating-rate note issue was launched.
For the first time, Japanese corporate borrowing in the Euromarket exceeded anything they had raised in one year in the US. The market also gave birth to syndicated Euroloans, soon to eclipse the Eurobond market in size. A magazine called Euromoney also made its debut.