February 2008

The growth in size, expertise and therefore competition in the Shariah-compliant market in 2008 made Euromoney’s choices for our Islamic finance awards the hardest to date. The best firms not only got bigger, they brought new levels of innovation to bear in a series of landmark deals.

Greg Medcraft, former global head of securitization at SG, has left the bank after a 27-year career there. The new global chief, Jean-François Despoux, has appointed Jerome Jacques to replace Medcraft in the US, as head of securitization in the region.

"It’s mainly America’s fault," says a Tokyo analyst with a smile as he walks to the elevator after a meeting. The US is often unjustly invoked as the cause of problems in Japan but this time it’s hard to argue with the assessment. On January 22 the Nikkei 225 stock average plummeted 5.7% to 12753, prompted largely by fears of a US recession. It was a depressing year for Japanese stocks in 2007, with IPO volumes shrinking by more than 50% year on year and the Nikkei creeping downwards. This year looks to have had a bad start too: blame the US or not, local analysts say the index could dip below 12000 this year.

The Depository Trust & Clearing Corporation and CLS Bank International have launched a central settlement service for over-the-counter credit derivatives transactions. The service is an automated solution for the calculation, netting and issuing of payments between counterparties to bilateral contracts.

Ulan Bator has become the latest destination for hedge fund managers, following the creation of the first offshore investment fund to be focused exclusively on Mongolia. The Mongolia Discovery Fund has been established by Alisher Djumanov, formerly of Uzbek investment banking firm Asher Group, who has raised an initial $5 million of seed capital for the new fund, which is being launched by newly established management company Silk Road Fund Management.

The credit crunch has spurred an increase in the number of new hedge fund launches. Marco Masotti, partner in the fund formation practice at Paul, Weiss, Rifkind, Wharton & Garrison in New York, says he has had an increasing number of enquiries from new managers over the past two to three months. "Some are setting up as they wish to take advantage of the investment opportunities that have sprung up, others are leaving financial institutions to start on their own as they are unhappy with management changes, or bonuses at their financial institutions."

Icap is determined to boost the position of its spot trading platform, but mutually owned venues are at a disadvantage.

Japanese ECM issuance fell 177% in 2007 to just $25.5 billion and 266 deals. Japanese companies raised just $6 billion in IPOs, a decrease of 68% from 2006 when they raised $18.9 billion.

According to prime brokers in New York and London, funds of hedge funds are reducing the number of new managers they are taking on their books, and, in some instances, are reducing their existing portfolios of managers. One prime broker says that some funds of hedge funds have reduced their books of managers by 10% to 20% over the past two quarters.

US and European fund managers are snapping up stakes in Brazil’s small, specialist fund boutiques. They are looking to gain exposure to some of the world’s fastest-growing financial markets, diversify revenues, and capture the huge Brazilian shift out of bonds into equities and other assets. For their part, Brazilian managers are gaining know-how, technology and access to well-oiled marketing machines.

Emerging markets Equity indices in emerging markets outperformed those of developed markets in 2007, rising 42% compared with a gain of just 9.4% in developed markets, according to Standard & Poor’s global stock market review, The World by Numbers.

Proposals for establishing an EU-wide definition for bank capital have caused a stir in the arcane world of hybrid regulation.

Put off by past experience, but the consensus is that its time has come.

Former chairman of the Federal Reserve Alan Greenspan has joined Paulson & Co as a member of its advisory board. He will provide advice to Paulson’s investment management team on financial markets in an exclusive arrangement. John Paulson, founder of the event-driven hedge fund, saw assets balloon from $7 billion to $28 billion last year because of correct calls on the sub-prime market.

In a signing ceremony witnessed by UK prime minister Gordon Brown and Chinese premier Wen Jiabao, Standard Chartered Bank agreed on January 18 to provide credit to a microfinance organization in China. It is the first time an international bank has backed such a project in China. The bank is to supply an initial Rmb20 million ($2.76 million) to the China Foundation for Poverty Alleviation (CFPA) to support farmers and small business owners. Microfinance initiatives are seen as key tools in the fight against poverty. Providers of microcredit in poor areas get help in reducing their operating costs; the investment banks benefit from being attached to these PR-friendly projects and often make decent returns on their investments. Standard Chartered is no idle investor: in return for its expertise and reach the bank expects CFPA’s assistance to expand its business in rural China.

Electronic broker Icap, the world’s biggest interdealer broker, acquired a 15% stake in the Bolsa de Productos de Chile (BPC) commodity exchange in January. This deal makes Icap the first international investor to have an ownership stake in a Chilean exchange, after acquiring the last three shares that belonged to BPC for Ps400 million ($800,000). This deal values the Chilean exchange at $5.6 million.

As the probability of a US recession rises, the best- and worst-performing credits of 2007 reveal the state of play in global economies. Jethro Wookey reports.

But lack of legislation might deter traditional investors.

Net inflows into hedge funds in 2007 were higher than 2006 levels in spite of turbulent markets.

Cognotec, an FX trading solutions provider, has formed a partnership with Saxo Bank. As a result, Saxo will stream liquidity to Cognotec’s RealStream Margin trading platform, which Cognotec developed specifically to target what it calls the professional retail market. In a press release, Brian Maccaba, Cognotec’s chief executive, said: "We are delighted to partner with a progressive bank such as Saxo Bank with its depth of FX experience, and particularly their leading profile in the professional retail trading market."

The strategic investment case for emerging European equities remains solid despite the deterioration of global markets caused by liquidity constraints in the banking system, says Martin Majdaniuk, manager of Baring Emerging Europe, which has $850 million under management and has returned 195.6% over the past three years.

2007 was a mixed year for Japan, with the stock market suffering from foreign investors uncertainty following the subprime crisis and the long-hoped for recovery of the economy still not fully underway.

The Brazilian financials sector is set to suffer a hit on its profits in 2008 after the government increased banking profit taxes.

"Sudan is probably the richest country in the region. It has the best commodity in the world: water. It also has oil, minerals, cattle, fertile land and human resources. If it can resolve its problems, Sudan has the potential to be a perfect economy." Such is the view of Ahmed Abbas, CEO of Liquidity Management Centre, a Bahraini Islamic investment firm. And if the capital markets are anything to go by, says Abbas, the biggest country in Africa might already have begun its recovery.

Central and eastern European issuers are likely to find accessing the international bond markets a challenging experience in the coming months given the continued US-inspired global liquidity squeeze. Speaking at Euromoney’s conference on central and eastern Europe in Vienna, Fokion Karavias, general manager of the global markets division at Greece’s EFG Eurobank, says that on the back of a general flight to quality from emerging towards developed markets all borrowers will face tougher market conditions but that government borrowers should find it easiest to issue. "Sovereigns will need to pay much higher spreads, but they will be able to issue," says Karavias, adding that even potential Euromarket debutantes such as Albania and Azerbaijan could get maiden issues away if they are prepared to pay the higher market clearing levels being demanded by investors.

During the course of 2007 launching deals went from being the ­easiest in history to perhaps as tough as it has ever been. But the finance industry continued to show it could produce the goods whatever the market’s conditions. These are the deals where issuers and advisers got their timing and structure just right.

The Argentine government under the leadership of Cristina Kirchner will have to reach a resolution with the holdout investors from the sovereign’s debt restructuring of 2005 if it is to avoid financing issues, according to analysts.

Fund of hedge funds group Financial Risk Management (FRM) has launched a new business to provide seed capital to early-stage hedge fund managers. Group chairman Blaine Tomlinson cites the need for managers to reach critical mass through partner ventures as the reason for the creation of the new platform. The business, FRM Capital, will also provide investment opportunities for existing fund of hedge funds clients. Industry participants say that the number of seeding funds is increasing as entering managers find it harder to attract capital, and as firms such as FRM seek to diversify their business.

The Republic of Turkey, emerging Europe’s most prolific issuer in the international debt markets, made a strong start to 2008 with the reopening of its 2018 6.75% dollar Eurobond for $1 billion.