Prof Belittles Credit Mart's Success

Professor Avinash Persaud, who shot to fame in the late 1990s by predicting the Russian devaluation crisis four months before it happened, has criticized the credit derivatives market for merely pushing credit risk into the insurance sector, and not actually reducing the level of systemic risk in the financial markets, as its boosters often contend.

  • 03 Dec 2004
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Professor Avinash Persaud, who shot to fame in the late 1990s by predicting the Russian devaluation crisis four months before it happened, has criticized the credit derivatives market for merely pushing credit risk into the insurance sector, and not actually reducing the level of systemic risk in the financial markets, as its boosters often contend.

Persaud, an investment director at GAM London, chairman of Intelligence Capital Advisors, and Mercer memorial Chair in Commerce at Gresham College in London, said because the insurance sector has started marking-to-market exposures in the same way as banks, it has not made a significant difference to the overall level of risk. Persaud lays some of the blame at the regulators' doors. He thinks regulators have exacerbated the situation by trying to impose a mark-to-market framework across the financial community through such methods as International Accounting Standards and also by not spelling out to asset managers that they need to take a long-term view.

Persaud's theory is, "risks are not reduced by being spread if all [the risk takers] behave in the same way. Diversity in methods, not in name plates, leads to the reduction of risks," he added.

The professor acknowledges the banking sector has emerged relatively unscathed from one of the harshest credit crunches, but he argues looking at banking as a test of financial market health is outdated.

Persaud argues the insurance sector is now sitting on the risk. Because insurers are marking positions to market, they will hedge volatility looking to sell exposure when the price falls. This could lead to disaster. "When falling markets are met by hedgers and not bargain hunters, black holes develop," he prophesied.

The solution, argues Persaud, is for insurance companies and asset managers to start acting in the traditional way, which includes taking a long-term view and accrual accounting. "We need high and uncommon standards," he concluded.

  • 03 Dec 2004

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 353,377.35 1327 9.07%
2 JPMorgan 316,733.86 1438 8.13%
3 Bank of America Merrill Lynch 316,098.84 1095 8.11%
4 Goldman Sachs 234,493.12 778 6.02%
5 Barclays 226,573.92 880 5.82%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 34,312.86 161 6.57%
2 Deutsche Bank 34,194.98 116 6.55%
3 Bank of America Merrill Lynch 31,113.25 94 5.96%
4 BNP Paribas 27,479.75 167 5.26%
5 SG Corporate & Investment Banking 23,982.83 136 4.59%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 19,536.02 78 8.89%
2 Morgan Stanley 16,323.54 83 7.43%
3 Citi 15,750.21 93 7.17%
4 UBS 15,208.47 58 6.92%
5 Goldman Sachs 13,499.48 73 6.15%