April 2008
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LATEST ARTICLES
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Despite widespread investor puts of pre-crunch extendible notes, the sector is experiencing a relatively good 2008, with investors calling the shots.
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The financing of Nigerian energy company Oando’s acquisition of a 49.8% stake in two offshore oil blocks owned by Royal Dutch Shell was due to close at the end of March, according to Wale Tinubu, the company’s group chief executive.
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"I’ve reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term ‘thinking outside the box’"
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"Low sovereign default rate reflects buoyant global market conditions."
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Any product that combines the words “catastrophe” and “securitization” is going to be a tough sell in this market. But insurance-linked securities are a rare sector of spread stability and growth in the credit world. Louise Bowman reports.
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As part of plans to boost Moscow’s position as an international financial centre, the Federal Financial Markets Service has announced plans to exempt investment in securities from taxation. The proposal forms part of a strategy document covering the period to 2012. If approved, the FFMS proposal will come into force in 2009.
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With big declines and huge daily swings, stock markets around the world looked even less welcoming to new issuers in March than they had for much of the year, during which time companies fearful of a cold reception had withdrawn or postponed more than $20.5 billion-worth of deals.
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The stellar returns from reinsurance that lured in hedge funds in the wake of the 2005 hurricanes have dissipated. But this won’t deter managers with long-term strategic plans, reports Helen Avery.
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There are signs that Venezuela is moving away from the plummeting dollar for some of its oil contracts. Energy minister Rafael Ramírez said last month that his country would insist on payments in euros on some contracts. Ramírez declined to give further details, although the move is bound to further damage relations with the US government. Venezuelan president Hugo Chávez has been critical of the Bush administration’s economic policy, blaming it for the dollar’s slump. He wants Opec members to move from pricing oil in dollars to a basket of currencies.
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Despite reporting its first annual loss in 2007 and forecasts of further credit write-downs in the first quarter, Merrill Lynch is getting out the chequebook for its Latin American business. The firm has gone on a shopping spree and plucked the cream of the Latin American investment banking crop, especially in Brazil.
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One characteristic that both the ABS and leveraged loan markets share – apart from having had a hideous time over the past nine months – is that fledgling indices for both (the ABX and LCDS/LevX respectively) have been subjected to the most testing market conditions in memory very early on in their development.
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Brian Stevenson is the head of the new global transaction services division at RBS, following its acquisition of ABN Amro’s business. In his first interview since he took the job, he talks to Laurence Neville about separation, integration and what the future holds.
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Since it launched its FXTrade platform in 2001, Oanda has carved out a reputation as an iconoclast and innovator in the foreign exchange industry. By making use of smart risk management tools, it has helped pioneer the delivery of tight spreads initially to retail customers but increasingly to institutions.
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Abu Dhabi wants to be a global capital city: a pleasant hub for industry and high-class tourism. To attain that goal, it is looking for outside investment. But despite a stated desire for more independent business, the ruling family is still omnipresent.
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Citadel Known to be taking full advantage of the carnage in the markets, Citadel is now launching a multi-strategy macro investment business to cash in on arbitrage and trading opportunities. Kaveh Alamouti has been hired from Moore Capital to run the business.
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"The private equity party is over," says Kevin Dolan, chief executive of $5 billion fund of hedge funds La Fayette Investment Management in London. The credit crunch has made it difficult for private equity firms to take companies private, and that is good news for activist hedge funds, he claims.
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Deutsche Bank’s global head of equity and derivatives trading, Noreddine Sebti, is packing his bags and ditching the Big Apple for Hong Kong, in a move that the bank says reflects Deutsche’s increasing focus on the Asia-Pacific region, which it expects to overtake Europe in terms of equity trading this year.
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US investment bank Merrill Lynch has created a new infrastructure equities index, giving investors convenient access to the projected infrastructure boom in Russia.
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Chatting with Ajith Cabraal, the amiable governor of the Central Bank of Sri Lanka, in his lofty eyrie above Colombo, one could be forgiven for thinking that he’s presiding over some approximation of a Switzerland-sur-tropique. Although his Indian Ocean homeland is besieged by a civil war escalated by an ambitious president with an advancing personality cult, "things aren’t nearly as bad as they might appear on CNN," Cabraal says.
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Commodity prices continue to break records, defying the spectre of slowing growth in the US and the performance of other asset classes. With some commentators attributing the price rises to the billions being poured in by investors, is it boom or bubble? Peter Koh reports.
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Investors looking for attractive long-term return potential could do worse than look at bank stocks in southeastern Europe. That’s the conclusion of a recent report by Günther Hohberger and Gernot Jarny, banking analysts at Erste Bank in Vienna. Entitled South east European Banks: Boom or bust? the report looked at the banking sectors in Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Romania and Serbia, and concluded that overall growth rates for banks in the emerging economies of southeastern Europe versus the more developed markets in central Europe will be higher for the next decade at least.
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Don’t confuse a lack of deals with inactivity; allocations to private equity are set to rise.
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Last month two interdealer brokers unveiled their participation as official venues for the trading of Dutch bonds.
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A sign of the weak prospects for the European securitization business has been provided by Morgan Stanley’s aggressive cost-cutting. Ellen Brunsberg, head of the European securitized products group, is still at the firm but out of the 70-strong team, only 20 people now remain.
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Brazil’s Banco Itaú plans to open a Tokyo branch of its securities subsidiary, Itaú Securities, in the autumn. The subsidiary will become the first securities firm from the Bric countries (Brazil, Russia, India, China) to set up an operating base in Japan. The new branch will sell Brazilian stocks, bonds and other financial products to institutional investors.
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But lenders will price to encourage trading.
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Credit Suisse and Gulf Capital, one of the region’s biggest private equity firms, have announced an agreement in principle to launch a strategic alliance focused on investing in the Gulf and Middle Eastern economies. Karim El Solh, chief executive at Gulf Capital, says: "Of particular help to us will be Credit Suisse’s expertise in leveraged buyouts, its global footprint, its financial strength and award-winning debt and equity franchises in the Middle East."
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Much is made of Ben Bernanke’s academic work on the Great Depression. However, the Fed chairman seems to making policy with one eye on the recent Japanese debt deflation cycle.
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Last month Euromoney wrote about how the valuations service sector was heating up. Financial data provider Markit subsequently announced a new multi-dealer valuations platform. Chief executive Lance Uggla explains to Alex Chambers how the firm is broadening its offerings from credit to OTC equities.
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If it’s a chilly wintry day in London, Ratan Tata must be in town buying classic-but-hoary old UK brands. In 2007, the Indian industrialist made headlines after overpaying (as Tata himself admitted) to snap up Anglo-Dutch steelmaker Corus for $12.9 billion. At the time, a banker involved with the deal remembered with a grimace the awful steel assets up for sale on the British side of Corus, noting that they were the worst he’d seen in a developed country in "a long, long time". Never mind: Mumbai-listed Tata Steel, the division that completed the Corus acquisition on January 31 2007 with the aid of a $2.66 billion bridge loan and $6.14 billion-worth of debt, saw its stock more than double in value in 2007 – although it has fallen back by a third this year, in line with the rest of the market.
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Costs are rising in Asian private banking but the vast and untapped pools of wealth in the region mean that it is still a highly attractive business proposition. The adverse market environment will further reduce margins. However, on a long-term basis the opportunities are too good to miss. Helen Avery reports.
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The covered bond market has not behaved in the way investors had been led to believe it would. It’s time to realize that covered bonds are not the golden child of the bond family.
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Will the long-awaited recovery in the German real estate market be stopped in its tracks by turmoil in the debt markets? Louise Bowman reports.
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But CDO managers are paying a premium, especially in the US.
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Highly levered funds are always at the mercy of credit and liquidity suppliers. So be wary of those active in markets where liquidity can rapidly dry up, says Neil Wilson.
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Awash with cash that far exceeds domestic investment opportunities, Australia’s pension funds are continuing to expand their holdings in global and alternative assets, developing an expertise paralleled by that of the country’s banks. Chris Wright reports.
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First Avenue Partners, a hedge fund advisory firm based in New York and London, is raising money for a new multi-strategy fund of hedge funds investment vehicle that will focus on Brazilian managers. The fund, which will be managed by Brazilian investment boutique Arsenal Investimentos, plans to raise $300 million.
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Banco Santander in Brazil has named Banco Real chairman Fabio Barbosa as the new head of the Spanish bank’s businesses in Brazil. Barbosa will take up this new role when Banco Real is legally separated from ABN Amro. Gabriel Jaramillo, the current country head of Santander in Brazil, will "provide advice and support to the office of the chairman of Santander". Jaramillo’s post will be filled temporarily by Jose Paiva until Barbosa takes over the combined operations.
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A merger of BNP Paribas and Société Générale would be difficult to fund and to execute.
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If Japan’s property bubble has already expanded and popped, China’s might be close to bursting.
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Even given its tumultuous history, the past few months have been especially volatile in Pakistan, highlighted by the assassination of Benazir Bhutto. From a financial perspective, the country faces several problems, in particular rising inflation. Shamshad Akhtar, governor of the State Bank of Pakistan, tells Sudip Roy why, despite this, she is confident about the nation’s medium-term prospects.
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Accusations of sharp practice are flying as the loan market struggles to deal with its problems.
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Far from solving BAA’s financial problems, the CAA’s regulatory review will make life for it even worse.
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RBC Capital Markets is building a European leveraged finance team.
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India’s nascent and relatively isolated financial markets have been spared the worst of the credit crunch but leading corporates are feeling the squeeze in other ways.
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Even though spreads for most foreign exchange products are often so thin that they barely exist, the use of transaction cost analysis (TCA) to measure execution is on the increase.
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The Dubai Multi Commodity Centre Authority, which is owned by the Dubai government, is buying a 4.99% stake in Shariah Capital. The two companies are also creating a joint-venture investment company that will develop Shariah-compliant commodity-linked investment products.
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Thailand’s People Power Party government bears a close resemblance to Thaksin Shinawatra’s overthrown administration, and Thaksin is widely seen as its eminence grise. The government has big plans for infrastructure development but it is highly exposed to a contraction of US export demand and the potential for inflation. Eric Ellis reports.
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With the public markets all but closed, issuers have turned to private and structured products to fulfil their requirements. Those who have maintained the best relationships with their investors and dealers have proved best able to ride out the turmoil, printing deals at half their CDS levels or better. Infrequent borrowers and those who have taken cheap funding for granted are in for a shock.
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"It is an inauspicious year because the rat year brings about slower world economies where unemployment, money matters and environment matters would be the key issues. There would be plenty of natural disasters/diseases which could affect the world."
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Twelve Wall Street firms are in the early stages of developing a single trading portal alliance platform, operated by Nasdaq, for all 144a securities. The companies hope the platform will bring liquidity and transparency to the 144a market, which has been associated with unregistered, opaque trading.
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Local-currency debt markets in emerging economies are beginning to suffer from the credit crisis and broader global slowdown.
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Its strength in emerging markets makes it a serious player in FX.
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Spanish bank BBVA has announced plans to open a new platform in Brazil, following the sale of its 5.01% stake in Banco Bradesco.
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All market participants must still confront the reality of near total market failure across the debt and money markets, an inability to sell even quality assets for cash or to borrow against them and a complete loss of faith between financial institutions. More public money is surely coming, but how can it repair this?
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Rating agency considers wider implications of CDO methodology change.
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Market participants say that the borrowing binge by Russian banks and corporates in recent years could come back to haunt them, given the much tighter credit market conditions in 2008.
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Are banks biting the hand that feeds them? Perhaps, but what choice do they have?
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Deutsche Bank is believed to have suspended two of its Italian FX sales team because of procedural irregularities. Sources say that Riccardo d’Antonio, the bank’s head of Italian FX sales based in London, and his subordinate, Santo Caristo, who was based in Milan, were told of the action in early March. Their suspension is believed to relate to a small loss incurred by one of their clients, which led to an abuse of the bank’s booking procedures. Deutsche and the Financial Services Authority, which held d’Antonio’s registration, decline to comment.
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Cross-border partnerships are tricky at the best of times. Each side tends to be wary of the other. Often cultural differences come to the fore. And then there’s the internal politics. So the failure of Barclays and Absa, the South African bank in which Barclays holds a 60% stake, to reach agreement on the sale of the UK bank’s other African businesses will only reinforce the impression that the relationship is tense.
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More assets are yet to be hit in the credit crisis and, as leverage continues to fall out of play, liquidity will keep on drying up. Equity prices are bound to fall still further too.
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It’s pitiful trying to blame short sellers for the woes of the financial system.
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Small-cap stocks in the US have so far weathered the deteriorating credit market conditions better than their international peers. According to Credit Suisse, however, the situation, is looking increasingly anomalous and is likely to change as the effects of the liquidity crunch catch up.
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Moody’s Investors Service has assigned a Baa1 country ceiling for long-term foreign currency debt and Ba2 issuer ratings for the Republic of Montenegro. All ratings carry a stable outlook. "Montenegro’s ratings reflect the new country’s growing integration with the European Union and the financial stability afforded by the use of the euro as the official currency," says Kenneth Orchard, a Moody’s senior analyst. "Among Montenegro’s main rating constraints are its lack of administrative capacity and relatively underdeveloped judicial institutions."
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$20,500,000,000 The value of equity capital raisings postponed or withdrawn so far in 2008, according to Dealogic. The value of deals pulled is more than 10 times as much as the $1.9 billion over the same period in 2007 and is the highest ever on record.
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Alternative investments round up: Who’s smiling?
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The Fed is finding innovative ways to fund US financial institutions to combat the systemic risk that has done for Bear Stearns.
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They are China’s emerging rich: hundreds of thousands of entrepreneurs making money hand over fist. They want that money to work hard for them. And they are the target market for a new domestic industry: private banking. Chris Wright reports.
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Foreign exchange settlement system CLS has established a new record for the value of transactions processed in one day, soaring through the $10 trillion ceiling.
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Bankers at HSBC’s Canary Wharf headquarters have issued a damning verdict on their own staff canteen by adding a review of it to the popular London restaurant guide London Eating, giving it an overall score of just 2.5/10.
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Unless Japan gets more involved in international capital markets, perhaps through a sovereign wealth fund, it is likely to become increasingly irrelevant in Asian finance.
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As financial stress grows, economies weaken and companies see risks looming at every turn, insurers offer themselves up as strategic risk advisers. They must prove their risk engineering skills, upgrade systems, overhaul archaic industry practices and adapt to capital market investors seeking insurance exposure. Euromoney polls 255 leading corporations to fi nd which insurers and brokers are doing the best job.
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Despite the volume of high-profile mergers and acquisitions between exchanges, the number of trading venues in the US is an astonishing 55 and rising. According to industry consultant Larry Tabb: "The US financial markets are not just in flux; they are in full-out, no holds-barred, free-for-all radical change." Moreover, it is a trend that he believes is likely to be exported.
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Rapid growth can mean rising inflation, as Vietnam is discovering.
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"It is very hard to distinguish a catastrophe CDO from any other type of CDO in this market – aren’t all CDOs catastrophes?"
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Dimitri Psyllidis, co-head of EMEA FICC at Merrill Lynch has left the firm. David Gu was announced as sole head of EMEA FICC.
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Some of Argentina’s biggest companies are raising finance to invest in the booming agriculture sector in Latin America, on the back of steep rises in soft commodity prices.
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The credit crunch is inevitably limiting banks’ ability to offer supply chain finance services. But demand for these is set to keep growing, so the broader effect might be consolidation of the business into the hands of a few truly global banks. Laurence Neville reports.
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In one of his last acts before his bank was bought by Barclays for £373 million last month, Expobank chairman Kirill Yakubovskiy persuaded 12 of his female staff to strip off for a racy calendar. Ranging from secretaries to senior executives and aged between 20 and 33, Expo’s finest fillies didn’t leave much to the imagination. Senior manager Maria Guterman is Miss January, wearing a tray of enticing cakes and little else, while Miss February is network sales manager Yevgenia Trusilova, bending over a kitchen counter alongside the phrase "we work under your personal request". It will be of considerable comfort to John Varley that his vehicle for emerging market expansion can boast such great figures.
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If there’s another Bear Stearns or Northern Rock-style blow-up, will any other bank be willing or able to pick up the pieces?
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Measures to boost the competitiveness of Brazil’s exporters might well be fruitless.
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Citi has apparently raided rival UBS and captured its global banks marketing team. Neither bank was able to comment at the time of writing but it is believed Citi hires include Bruno Widmer and at least five of his Zurich team.
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Lost a billion dollars in the US structured finance market? No problem: Daddy just received a huge bonus from the global economy and will give you $1 billion to cover the damage.
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Shinsei Bank is to sell the headquarters building it inherited from its previous incarnation, Long-Term Credit Bank of Japan, in order to avoid booking a net loss for a second consecutive fiscal year. The ¥118 billion ($1.18 billion) sale is to a real estate fund managed by Morgan Stanley, and will help to offset the total of ¥32.5 billion of sub-prime related losses announced by the bank so far. The bank says it will rent the space for the next three years while it searches for a more cost-efficient base. This continues a recent trend of banks selling their Tokyo headquarters, with Resona announcing on March 11 that it is seeking a buyer for its Otemachi base. Meanwhile market participants wonder what Morgan Stanley knows about Tokyo property that they don’t: in addition to its participation in the Shinsei deal, the US bank bought Citi’s Shinagawa HQ in February for just over $1 billion.
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Despite avoiding the worst effects of the global credit crunch, Kazakh banks will need to undertake reforms in the coming months if they are to regain trust and confidence, concludes Standard & Poor’s credit analyst Ekaterina Trofimova. She says: "The Kazakh banking system has reached a decisive point in its development, with the continuing turbulence highlighting the need for a deep transformation of business practices, strategies and regulation."
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Investors in equity-linked structured notes are becoming increasingly concerned about counterparty credit risk, and are therefore becoming more discerning when it comes to choosing which institutions to buy their products from, report dealers.
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Icap’s launch of an insurance derivatives and securities broking joint venture will promote liquidity and transparency in this fast-growing niche. If new sources of capital prove resilient to soft markets, insurers may see them as a new strategic challenge.
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ECBC plenary meeting divided about how to handle market making.
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While investment bankers in the west expect a difficult 2008, counterparts in Asia cite the successful closing of buyouts, bond issuances and IPOs during the market turmoil as proof of the region’s opportunities. Lawrence White reports.
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The European Central Bank’s term repo window shows no signs of diminished popularity. With the European mortgage-backed market firmly shut, the central bank has continued to back securitization technology and extend liquidity for triple A-rated securities issued by Europe’s banks.
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The highly respected Gavin Wells has left Citi after a 14-year stint at the bank. Wells originally joined as part of the bank’s experiment of recruiting former British army officers; he successfully marched through the ranks to ultimately head the bank’s e-commerce trading force. Following Wells’s decision to stand down, Citi has decided to use its existing forces and deploy them in more distinctly divided specialist areas.
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We are engulfed in a tornado of gloom. Wall Street titans and employees alike have seen their share options decimated, pension pots plummet and everyone feels insecure about job security. I’m hearing that investment banks need to cut 20% of their employees to accommodate lower profitability.
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Funds move to more aggressive investment strategies.
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“Misunderstanding risk is, now more than ever, a potentially fatal risk for business” -Gregory Case, Aon Corporation