Blazing a trail

  • 20 Jun 2003
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Early Euromarketeers faced prejudice and ignorance from established investment bankers. But nothing dimmed their pioneering spirit, as Philip Moore reports.

Minos Zombanakis was, to put it mildly, peeved. The king of the syndicated credit was all for competition and innovation. But the floating rate credit in general, and the Italian market in particular, was very much his patch. After spending 11 years in Italy he had opened the London office of Manufacturers Hanover on January 5, 1969 with a view to mobilising short term deposits in the banking system and turning them into Eurocurrency term loans.

"When we started, it was just me, a secretary and a big advertisement in the International Herald Tribune announcing our new approach to international finance," he recalls.

In early 1970, things were going swimmingly for Zombanakis. By then, he had already arranged an $80m loan for the government of Iran - "an unheard-of amount in those days" - and had also just structured a groundbreaking five year $200m loan for Istituto Mobiliare Italiano (IMI). So when some of his competitors started peddling the idea around the City of a floating rate note (FRN) for the Italian state owned electricity company, Enel, Zombanakis was less than impressed.

The idea behind the transaction was dreampt up, if Euromarket legend is to be believed, in a bathtub in Pelham Crescent, Lonfon, by Evan Galbraith, a young American director at Bankers Trust. To translate the idea into reality, Galbraith needed a partner with corporate finance contacts able to find a client, and one with muscle in the secondary market to provide liquidity. Siegmund Warburg, with his extensive contacts in Italy, came up with the former, while Bob Genillard and Stanislas Yassukovich at White Weld pledged the latter.

"Minos did everything he could to shoot down the idea," Yassukovich recalls, and if Zombanakis's own version of events is to be taken at face value, he did so reasonably successfully. Zombanakis says that when he heard about the Warburg proposal, he leapt on a plane to Rome to see the Bank of Italy governor Guido Carli in order to tell his old friend that he had been sold a pig in a poke. "I said, this is terrible," Zombanakis recalls. "I told Carli that first of all he was going to be paying something like 2.5% in front end fees on the bond issue. And I also told him that as these notes were totally negotiable they could be sold by anybody, at any time and at any discount that suited the seller, whereas if he did a loan the paper could only be sold on with the consent of the borrower."

Zombanakis adds that at the same time he laid a piece of paper on Carli's desk undertaking to raise all the necessary funding (which Zombanakis says was $500m) via the loan market "at a spread of 1.5% and fees of 0.5%", which would have compared very favourably with the 2% spread quoted by the promoters of the FRN. "Carli called me the next day and told me he had withdrawn the FRN mandate and asked me if I would do the loan instead," Zombanakis continues. But he refused to take it on, advising Carli that the Warburg syndicate would now be persuaded to arrange the loan on his terms. "And that's exactly what they did," says Zombanakis. "A non-negotiable syndicated loan with a 0.5% fee."

Certainly, part of the financing arranged by the Warburg syndicate for Enel took the form of a $300m seven year loan, placed privately and principally among London branches of US banks. But Zombanakis seems to be in a minority when he describes the historic $125m 10 year FRN launched alongside the loan in April 1970 as a "gimmick".

Even The Economist, seldom given to bestowing fulsome praise, described the FRN as something that looked "far more than just another gimmick". It added that "if a good secondary market develops, SG Warburg and company may be blazing a very big trail indeed".

If Zombanakis, did not like the idea of the FRN, tough. The market voted with its dollars, and the Enel transaction was ultimately healthily oversubscribed. Besides, the deal's success did nothing to harm Zombanakis' career nor to eat far into his lucrative franchise at Manny Hanny. And Zombanakis was to make an outstanding contribution to the development of the global economic system for the next three decades, winning a decoration from the Emperor of Japan for his efforts as recently as April this year.

In the short term, the inaugural FRN did not open the floodgates for new product issuance. Although Pepsico soon followed in Enel's footsteps with a $75m issue, it would be many years before there was meaningful volume in the FRN market.

London makes its name
The real significance of the Enel transaction was the statement it made about London's capacity to innovate and to refine the Eurobond product in the face of potential adversity - in this instance, a rise in interest rates taking the gloss off the market for fixed rate bonds.

"Enel was interesting because it was the first example of an innovation developed on this side of the Atlantic," says Yassukovich. "We used to think of ourselves as great innovators in the Euromarket, but the truth is that most breakthroughs were American techniques and concepts that we had adapted for the growing market in Europe. The FRN did not exist in the US at the time, so it was a genuinely de novo concept in the Euromarket."

Zombanakis's recollection that the Enel FRN represented a consolation prize for its designers may seem churlish and deeply patronising to its inventors, but the fact of the matter was that in 1970 the seven year old Eurobond market was still not being taken especially seriously.

Nor, generally speaking, was it very well understood. "Even today," wrote a correspondent in a chunky Euromarkets survey published by the Financial Times in March 1971, "many bankers would find themselves in an embarrassing position if they were asked to provide a sound definition of a Eurodollar or a Eurobond".

Elsewhere within the City, the London Stock Exchange (LSE) continued to turn its nose up at the parvenu Eurobond market, while the FT of the early 1970s, according to the historian, David Kynaston, regarded the Euromarkets in general as "cultish and beyond the pale, a freak that was not the proper business of the FT". 1

But at least the authorities were starting to take notice of the market, and by September 1970 the Bank of England was prepared to accept its value within the international financial system. Its quarterly bulletin that month concluded by saying that the relatively new market had "clearly proved effective in attracting capital from all parts of the world and channelling it for long term investment in a wide range of countries".

It had also "enabled many borrowers to tap scarce capital, generally at a cost in interest terms which is modest compared with that of alternative sources."

Perhaps the bank was starting to recognise earlier than most that this upstart market, which had raised $565m in the first quarter of 1970, had the potential to strengthen London's credentials as the pre-eminent European financial centre. By then, the City was already emerging as the centre of gravity for both the primary and the secondary market. For that, thanks were due to the Swiss tax authorities, which effectively drove leading houses White Weld and Merrill Lynch out of Zurich and Geneva respectively when it slapped a turnover tax on secondary Eurobond trading.

"It just goes to prove that nothing changes," says John Langton, then of the Brussels-based Bondtrade consortium and now chief executive of the International Securities Market Association (ISMA). "The introduction of ill-thought out taxes drives business away and history proves that it is then very difficult to repatriate it."

Switzerland's loss was London's gain, although Paris was to remain a formidable competitor throughout the early 1970s. That had been the location of choice for powerful issuing houses such as Morgan & Cie, technically a banque d'affaires controlled by Morgan Stanley, which in 1971 topped a league table of dollar Eurobond lead managers compiled by Kleinwort Benson. It would not be until late in the 1970s that Morgan Stanley relocated its principal operations to London.

If ideas such as the Enel FRN were novel in 1970, they were also an immense credit to the spirit of invention, co-operation and refusal to buckle under unfavourable external pressures that characterised the young Euromarketeers of the early 1970s. "I think that none of us had any concept of failure," recalls David Potter, part of the While Weld team at the time. "In difficult times we just thought: there's a mountain, let's go out and climb it. And when we had climbed it we would go out and climb another."

There was no shortage of pioneering spirit among the investment bankers of the early 1970s feeling their way into the Eurobond market. But how many of them entered the business on the strength of CVs that would give them a snowball's chance in hell of securing employment in the City today? The Swiss-German Hans-Jörg Rudloff was one of the few superstars of the market in the 1970s and 1980s who most certainly did deserve his place. He yearned for an internationally oriented career long before graduating cum laude with an economics degree from the University of Berne in 1965.

The Rudloff family business was in the leather trade, importing raw materials from North America and Argentina, giving him a perspective on international trade at an earlier age than most. As a young graduate eager to travel, pushing paper at Credit Suisse in Geneva was not for him. "It was horribly boring, but later on very useful," he recalls, and after two years he made a move to Kidder Peabody which, at the time, hardly seemed a propitious career decision. "A lot of people told me I should have pursued a classic career in banking, and that only bad boys who had failed to make it elsewhere went to work for American brokers."

Ten years later, when Rudloff was appointed chairman of Kidder, the decision to escape from what he describes as "the morose environment of the imprisoned European financial markets" was not looking quite so stupid after all.

Wrong side of the tracks
If Rudloff had his investment banking cards marked fairly early in life, what of his colleague at Kidder Peabody, Stanley Ross, who came from the wrong side of the tracks? The bus conductor's son who would go on to become one of the most colourful and outspoken figures in the market, Ross left school at 15 and after a short time with the RAF first headed for the City in 1951. There, he cut his teeth at Strauss Turnbull, earning the approving attention of Julius Strauss, who one morning spotted the young Ross reading volume six of Proust's A la Recherche du Temps Perdu.

He moved on to Kidder Peabody's London office in 1967, where he set about building up the US bank's Eurobond operation from scratch, which he did with coruscating success. Today, Ross looks back with pride at having spearheaded a small team of 45 people which in one five year period contributed over a third of Kidder's total global income. He also recalls with undisguised pleasure at what he calls the "disintegration" of the firm that followed his enforced departure in 1978.

"I was an amateur; Ross was the mentor who really believed in this market and advocated its development," is how Rudloff remembers his relationship with Ross in the 1970s. But as Rudloff points out, social trends in the City of London in the 1960s and 1970s were such that Ross probably had his career in the Euromarket more or less forced upon him. "Stanley Ross was a tireless ambassador of the international markets and looked for a career in a market that was not dominated by the typical English City bankers."

When the Eurobond market rolled into motion in 1963, Ross could already look back on more than a decade in the securities industry.

But could the same not be said of the late Michael von Clemm, creator of the Euro CD market in 1966? What could an academic and anthropologist possibly have offered to the fledgling Eurobond market when he arrived at the London office of the First National City Bank of New York (Citibank) in the early 1960s?

Come to that, what sort of a contribution could be made by a psephologist whose main claim to fame, in the early 1960s, had been the authorship of books on the electoral system in Zambia? A psephologist, David Mulford will tell you, is one well versed in the statistical and sociological study of elections - an honourable and noble calling, to be sure, but not the most obvious route into a career in the Eurobond market.

Thankfully for the global economic system, White Weld had the imagination to spot Mulford's potential. So it was that the architect of Brady bonds and of a solution to the third world debt crisis made the unconventional transition from studying Zambian politics to selling Eurobonds.

Even those whose academic backgrounds appeared more suited to the investment banking industry hardly had distinguished or sparkling CVs. Yassukovich himself had achieved the rare feat of having been sent down from Harvard not once, but twice, for what he describes with a smile as "general fecklessness".

To drum that trait out of him, and to replace it with some much-needed self-discipline, Yassukovich was packed off to the Marines for four years before joining White Weld, where his father was an international partner. Nepotism, he freely concedes, was alive and well in the banking sector in the 1960s.

What drove this disparate lot, frequently regarded elsewhere in the City as the uncouth "Eurotrash" brigade, to pin their careers to the mast of a product that was unproven, misunderstood and viewed by their contemporaries with something bordering on contempt?

Few cite the money as a motive, although by the early 1970s investment banking was starting to offer better pay prospects to young graduates than the dinosaurs of industry. Michel de Carvalho graduated from Harvard in 1970 and impressed ICI by not raising the vulgar subject of pay at his interview.

For that restraint he was rewarded with a job offer promising him an initial annual salary of £2,000 which would rise - given a fair wind - to £3,000 by the time Carvalho reached his 30s. If that was not especially compelling, then nor was the horrible realisation that acceptance would mean working in a place called Teesside. "I asked if I would be able to commute from London," Carvalho recalls.

For Carvalho, White Weld was a much more appealing option, as it had been the previous year for David Potter. His move from the Allen, Harvey & Ross Discount House to White Weld lifted his annual salary by about £200 to £1,200, on top of which he discovered the new and wonderful world of bonuses, pocketing "something like £500" in his first year.

That was more than David Reid Scott earned, who recalls that his first bonus cheque from White Weld in New York in 1970 was for the princely sum of $219.50, which he considered "a bit unfair".

When he argued as much to his boss, his defiance was obviously welcomed as a characteristic that would take him far in investment banking. The cheque was promptly torn up and replaced with one worth $350.

But it was not money that had attracted individuals such as Mulford, Potter and Reid Scott to White Weld, the house which more than any other epitomised the adventurous spirit of the Euromarkets in the early 1970s. Mulford, touring the New York interview circuit in 1966, recalls how the internationally oriented White Weld was virtually the only bank that did not throw the familiarly boring questions at him, such as "why didn't you go to business school?" or "do you know how to write a prospectus".

It was a refreshing approach that also appealed to Reid Scott, a recent graduate in modern history ("nothing much after 1500") from Lincoln College, Oxford, who did not have the remotest idea what a P/E ratio or a yield was when he was thrown in to the deep end of White Weld's equity department. "White Weld said I could be part of its young team, whereas Barings told me I would spend the first six months sitting on a stool in the mail room," he recalls. "It was not a difficult decision."

Once a part of the team, young recruits to the White Weld cause were generally passed around the firm and encouraged to learn about all aspects of the business. In 1970, that may have meant sitting in the equity department alongside the likes of Oliver Fox-Pitt (he of Fox-Pitt Kelton fame), or being bawled at on the bond trading desk by the 27 year old Oswald ("Ossie") Grübel, described by a colleague as then being "very large, very intimidating, very unreal - the most aggressive bond trader you've ever seen."

Within individual departments of the firm, variety was very much the order of the day at White Weld, and Mulford, for one, loved it. "The reason it was so much fun is that you did everything," he says. "You solicited the business, you wrote the prospectus, you personally sent out all the telexes to underwriters and selling group members, running the tapes through the machines until three or four in the morning.

"When the issue was announced you took the orders and ran the book, then you were involved in the allocation of the bonds and the management of the secondary market. It was quite unlike the market today where everything is so compartmentalised."

Others have equally fond memories of the evolution of the market in the 1970s and of the breadth of responsibilities it brought. Armin Mattle is now enjoying his retirement close to Avignon, and says that today he is delighted to be entirely dissociated from the business world.

Mattle rattles the cages
But in his day, first at Dominion Securities (from 1956 to 1967), then as a founder member of Bondtrade (until 1974), and subsequently as the front-man for UBS's London-based primary and secondary Eurobond market activity (which opened for business on January 1, 1975), he had a fearsome reputation for no nonsense dealing.

His caustic approach to the market was immortalised by his quote, "I never comment on my competitors' failures", but even when called away from watering his garden on a summer's morning, he can look back on his Euromarket career with unalloyed affection. "My memory is of how much fun we had in the 1970s and 1980s and how much of a pleasure it was to be part of it," he says. "One remembers competing fiercely for a mandate one day and being part of the same syndicate the next. Very good relations were forged which are still maintained today."

The sentiment is echoed by Sir John Craven, who by the early 1980s had enjoyed a distinguished career at SG Warburg (twice) and White Weld, and was by then beginning to find the bond market boring - or "repetitive" and "lacking in variety and amusement" as he was once quoted as saying.

But he thoroughly enjoyed the 1970s. "At Warburgs in the early 1970s we would have had about 200 people, of whom no more than 10 were involved in the Euromarkets and only three or four would be externally visible," he explains. "So if you added up all the people in the houses active in the market there were no more than 35 or 40. Tremendous friendships were formed and if it was a community of 35 people I would say I'm still in touch with 10 or 15 of them."

The spirit of conviviality and co-operation extended well beyond business hours in the 1970s, with Annabel's nightclub in London's Berkeley Square serving as the favoured location for informal price talk among Euromarketeers well into the small hours - unless, of course, a deal had been signed that day.

Charlie McVeigh had relocated from New York to London in 1975, where he set about building up the Salomon Brothers franchise which would shake up the secondary market by narrowing spreads from the standard half point to a quarter.

But by the latter part of the decade Salomon was becoming increasingly active in the primary market, and McVeigh has happy memories of the era. "Every transaction was celebrated with a closing lunch or dinner, and they were generally very lavish affairs," he says. "This helped  contribute to the camaraderie and collegiate nature of doing business in a more human way - such a contrast to today".

Exclusively a man's world, then, where showy braces and large cigars were more or less de rigueur and where the jokes cracked around trading floors borrowed their language extensively (if unknowingly) from Lady Chatterley's Lover? Not if an individual with the sheer tenacity of Valerie Thompson could help it. When she spotted an advertisement in the Evening Standard in 1973 - "telex op. £32 a week. Telephone 600-1632" - she was not going to let a rejection on the grounds that at 16 she was too young dampen her determination. After all, the alternative was a job within the bureaucratic bowels of Ilford town hall, paying £7 10s a week. She demanded a fairer hearing from Salomon Brothers, forced her way on to the trading floor (initially as a dogsbody) and would end up heading the syndicate desk and becoming the bank's first female director.

Thompson is no fervent feminist and no follower of the modern political correctness that demands equal opportunities for all, irrespective of sex or ability. Equally, however, she describes as a "bloody disgrace" the recruitment policy of those banks that remain wedded to the idea that individuals without university degrees have neither the integrity nor the intelligence ("both very different from intellect") to progress in investment banking. "I rather like the idea of survival of the fittest," she says.

If Valerie Thompson has more in common with Stanley Ross than with Emmeline Pankhurst, she is also living proof that when Charlie McVeigh talks about the genuinely eclectic meritocracy that Salomon Brothers brought to its London operation in the mid-1970s, it is anything but empty rhetoric.

Lavish dinners, strong friendships and - by today's standards - rock solid job security there may have been for the pioneers of the 1970s, but it was by no means an uninterrupted party. 1971's liquidity crisis brought one of those spasms of self-doubt that would grip the Eurobond market on a number of occasions over the next two decades.

Dollar crisis
But nothing was quite as bad as 1974, when, in the wake of the dollar crisis and the oil price shock of 1973, many within the market were fearing for the market's survival and their own careers. Yassukovich had by then moved from White Weld to head up the new consortium bank, the European Banking Company (EBC); and although he can afford to smile about it now, attempting to set up a new bank in 1974 was no laughing matter.

This was the time of power failures and of the three day week, when bankers would huddle around candle-lit tables and drivers would display stickers exhorting the last person leaving the country to extinguish the few lights that were still shining.

"We had an inverse yield curve and double-digit short term rates," Yassukovich recalls. "It was probably the lowest point in British post-war finance."

The Eurobond market shared the pain, with new issuance volume, which had exceeded $5.5bn in 1972, slumping to below $2bn in 1974. But far from collapsing, the market recovered and flourished, posting a record year in terms of primary activity with new issues amounting to $8.3bn. In so doing, the Eurobond sector established a leitmotif for the next three decades: its capacity to rebound from each setback stronger and more inventive than it had been before. It did so principally because of its chameleon-like capacity to adapt and refine itself to altered market conditions.

Symptomatic of that character, as the market returned to its feet in late 1974, was a shortening of maturities.

So what if jittery investors were now less ready to buy the 15 year paper that had been the norm in 1972 and 1973? Let them eat five year stuff instead.

Confidence in the market's resilience was growing, and it refused to be knocked down by another potential storm that started to brew in 1973, when it became clear that the US was likely to relax capital controls by removing the interest equalisation tax (IET) that had helped launch the market 10 years earlier.

For those whose livelihoods depended on the Eurobond market, the news that appeared in the FT on February 19, 1973 made dispiriting reading. This warned that the removal of the US tax "could imply the disappearance of one of the main foundations of the City's pre-eminence as a world financial centre" because there would be "no technical reason... for US companies, still the main borrowers in the Eurobond market, to come to Europe to find dollars to finance international operations".

True enough, the removal of the IET prompted something of a boom in the market for US foreign bonds, otherwise known as Yankees, issuance of which exploded from $1bn in 1973 to $3.3bn in 1974, $6.5bn in 1975 and $10.6bn in 1976, with Canadian provinces especially prolific in the sector. But this was no zero sum game, and the emergence of the Yankee market did nothing to arrest the revival of the Eurobond market in which the time to market was much quicker and less bureaucratic, and the borrowing costs often much lower for borrowers.

The result was that far from closing down for the US borrowers that had provided the lion's share of new issuance volume in the previous decade, the mid-1970s brought with then a fresh wave of opportunities for investment bankers championing the Eurobond product to US corporates.

For White Weld in particular, with its credentials on either side of the Atlantic, this was something of a golden age. By then, Mulford was back in New York, heading the corporate finance department. Along with David Reid Scott, he would organise whistle-stop tours around the US for visitors from the London office such as Yassukovich.

The tours in question were of the if-it's-Friday-it-must-be-Chicago variety, which suited Mulford down to the ground, given - as Reid Scott recalls - that he was a super-fit young man for whom a five mile run was a light jog.

But Reid Scott also relished the White Weld roadshows. "What was fun was that at the age of 26 you could walk into the offices of very senior executives, and talk to them about this strange dollar market which somehow sat in no man's land," he says.

"We would tell them that they could potentially raise cheaper money there than they could in the domestic market, and that even if they couldn't they had better get their name known in Europe because they might need the market one day. And we got a bloody hearing."

Banking giants squeezed out
If finance directors and treasurers were pleased to see White Weld coming (along with the likes of SG Warburg, Hambros and others), the traditional issuing houses in the US had decidedly mixed feelings.

Sir John Craven, who was then at SG Warburg and remembers being encamped in Detroit and working on a transaction for Chrysler soon after the IET's removal, says that houses such as Morgan Stanley and Goldman Sachs were slow to cotton on to the significance of the Eurobond market in the early 1970s. The result was that mandate after mandate was won by the White Welds and Warburgs from under their noses.

"We would try to bring in houses like Goldman Sachs and Morgan Stanley as co-managers or whatever," says Reid Scott. Ultimately, those co-manager positions would function as Trojan horses for the US investment banks, bringing them the expertise that they would need to invade the European market in a big way at the end of the 1970s, but for the time being White Weld and others made hay while the sun shone.

If investment bankers in London were looking to the west for the supply of Eurobonds, they were looking with increasing enthusiasm towards the east for demand. By the early 1970s the Euromarkets were playing a key role in recycling the petrodollars that were being piled up with such astonishing speed in the Middle East, although it was the loans market that was the principal beneficiary.

As early as February 1973, Zombanakis was telling a conference that Middle Eastern funds in search of a home would soon reach "unmanageable proportions as the energy-producing countries become a capital exporting area of a size the world has never seen before." In the event, his estimate that by 1979 the six countries in the Gulf plus Libya and Algeria would have an aggregate income of "close to $50bn annually" proved to be vastly underestimated. As a result,  by the mid-1970s his challenge was to find enough borrowers to absorb the funds available in the loan market.

Middle East expansion
But the growing influence of petrodollars was also creating substantial opportunities for expansion of the Eurobond market. Who remembers the first Lebanese pound issue, which saw Renault raise L£50m in a seven year transaction in February 1973? Or the first issue denominated in Kuwaiti dinars for the Philippines in the same year? Or the first Eurobonds denominated in UAE dirhams, and issued by such improbable borrowers as the Cie Nationale Algeriène de Navigation or Ljubljanska banka in 1977?

Even in a market that was still small, deals in exotic Middle Eastern currencies were not going to have a big impact on overall issuance. Nor were those in new synthetic baskets such as the Eurco, which was conjured up in September 1973 with an EIB transaction, or Special Drawing Rights (SDRs), in which three bonds were denominated in 1975.

Packing more of a punch among new currencies in the market was the Canadian dollar. It made its first appearance in 1974 and was hailed the following year, when issuance reached $560m equivalent, as "undoubtedly the success story of 1975" by Investors Chronicle, which in those days ran a weekly column (of highly variable quality) on the Eurobond market.

Among European currencies, meanwhile, Dutch guilder issuance expanded from $194m (equivalent) in 1973 to $385m in 1974 and to over $900m in 1975. But it was the Deutschmark that presented the most formidable challenge to the dollar as a currency of issuance, with activity in the primary EuroDM market exploding from DM1.34bn in 1974 to DM7.54bn in 1975 alone.

Rising issuance in the Deutschmark sector paved the way for an example of another recurrent theme of the Eurobond market in the 1970s and 1980s - which was that rules were generally there either to be broken or, at the very least, kneaded into more acceptable form. The German Capital Market Subcommittee had been set up in 1968 by six leading local banks (of which Deutsche was one), together with representatives of the Bundesbank and the German Bankers Association.

Throughout the 1970s, this subcommittee religiously controlled the flow of new issuance in the DM sector, which by 1977 was being limited to between DM1bn and DM1.2bn a month. But by the latter part of the 1970s, demand for EuroDeutschmarks was rising inexorably, with DM issuance increasing from 25% of total Eurobond supply in the third quarter of 1977 to 40% in 1978. With Deutsche streets ahead of its closest competitor WestLB in the 1978 EuroDM league table, the subcommittee's restrictions were by now starting to cramp its style.

In October 1978, Deutsche ruffled a feather or two when by selling DM500m of a six year Canada issue it appeared to be flying in the face of the calendar system governing new issuance.

Its argument was that as the DM500m had been part of a DM1.5bn financing arranged by Deutsche the previous May, with the bonds (and the risk) having sat on the bank's books ever since, the sale amounted to a secondary rather than a primary offering, and was therefore not subject to the German subcommittee's restrictions.

It seemed a fair response and was an early example of the futility of maintaining artificial barriers which enterprising investment bankers would tirelessly endeavour to scale.

Aside from the arrival in the market of a broadening range of currencies, a number of other developments fortified the credentials of the Eurobond sector in the mid-1970s. Innovation was flourishing, with the FRN market re-emerging powerfully from 1975 onwards. In spite of the fanfare accompanying the Enel deal at the start of the decade, there had only been 14 FRNs raising $540m between 1970 and 1974. In 1975, FRN issuance amounted to $320m, but in 1976 volume flew through the $1bn threshold, accounting for about 12% of new total issuance.

This then rose to $1.7bn in 1977 and to $2.5bn, or close to 40% of the total, in 1978, with the market underpinned for the most part by rising bank issuance and increasing demand from institutional investors.

Institutions move in
That institutional participation in the FRN sector pointed to another key trend of the late 1970s, which was the growing involvement of insurance companies, pension funds and other institutions in the Eurobond market.

The market was moving forward, albeit slowly, from the sort of stereotype described in February 1976 by Investors Chronicle, which reported that two-thirds of Eurobonds ended up in the hands of Swiss bank customers.

It added that these instruments were attractive to "rather shady investors who keep their funds in numbered Swiss bank accounts" but were "not at all a suitable vehicle for institutional investment".

By the back end of the 1970s, the primary market of the Eurobond sector was also making important progress on a number of levels. Borrowers were starting to tweak the issuance procedure, either to improve pricing, broaden distribution or both.

In July 1979, for instance, the EIB made its first attempt to introduce competitive bidding for a public Eurobond issue, inviting bids from 50 banks for an issue of between $50m and $100m, a contest eventually won by Citicorp, Samuel Montagu and ABN. In the same week, the ever-inventive Sweden broke from standard Eurobond practice when SG Warburg, lead manager of its $100m five year bond, distributed invitation telexes to underwriters giving no indication of coupon or price - not, perhaps, in line with modern bookbuilding and price discovery pricing mechanisms, but a step in the right direction.

In the late 1970s, however, nobody did more to shake up the new issue market than Stanley Ross (see separate article). In so doing, he was open to a torrent of opprobrium that to this day he finds surprising.

But even his most vocal opponents in 1978 and 1979 were to acknowledge in later years that when Ross introduced the practice of grey market dealing he was injecting some much needed discipline into the primary market. By then, after 11 years at Kidder Peabody, he had been served with what he describes as his DCM (Don't Come in on Monday) notice, but had soon bounced back, establishing Ross & Partners. There, he would stir up a hornet's nest by anticipating one of the foremost trends of the 1980s and using technology (in the form of an electronic Reuters page) to expose mis-priced new issues.

The "old-boy network", as Ross later described the quartet of Von Clemm, Koller, Mattle and Rudloff, was disgusted at the initiative, and in its 1979 meeting the committee of the AIDB unsuccessfully called for pre-market trading to be outlawed.

That failure, many now agree, was ultimately a blessing for a primary market. It urgently needed to be modernised as the 1970s drew to a close. Today, Valerie Thompson probably speaks for many recent Eurobond practitioners in her tribute to Stanley Ross. He was responsible, she says, for permanently "blowing the cover" of those who believed new issues could be mis-priced ad infinitum.

"For that, Stanley probably never received the full recognition that his contribution to the market merited," she believes.  

1The Financial Times - A Centenary History by David Kynaston (Viking, 1988)

  • 20 Jun 2003

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3 Bank of America Merrill Lynch 358,416.32 1295 7.81%
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5 Barclays 264,598.20 1056 5.77%

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1 HSBC 44,979.63 190 6.68%
2 Deutsche Bank 37,125.85 136 5.51%
3 BNP Paribas 36,403.69 206 5.41%
4 JPMorgan 33,752.71 110 5.01%
5 Bank of America Merrill Lynch 32,865.23 106 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,398.41 104 8.72%
2 Morgan Stanley 18,608.72 99 7.25%
3 Citi 17,768.49 110 6.92%
4 UBS 17,372.80 70 6.76%
5 Goldman Sachs 17,228.66 97 6.71%