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Premiums may not be at risk of increasing yet but caution should remain the watchword
It will be better for all in the long run if Venezuela can prioritise domestic spending over debt repayments
The rollover risks sovereigns are accepting in exchange for cheaper funding
It's not the juniors in capital markets who need protecting from obsolescence. They stand to benefit most from the deployment of AI
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Like Tantalus, forever reaching out for fruit which seems to be achingly close, but never quite within reach, the Icelandic banks, Glitnir, Kaupthing and Landsbanki, have been driven to distraction by the rating agencies. Each time the agencies ask for something, they do it — only to be told that now they must jump through a new hoop.
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Europe’s loan market is still capable of funding big deals — but these transactions are not easy, and lending appetite is still constrained. Bankers are angry, therefore, at a new form of ill-discipline they believe has crept in to this normally civilised market. This is the ‘bait and switch’, in which banks offer borrowers a low rate to win the mandate, only to put it up before launch.
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Yet another deal pulled from the leveraged loan market is hardly a positive sign but the decision to withdraw the Eu620m deal for UK chemicals firm, Ineos, last week doesn’t spell gloom for the LBO sector. It merely confirms what was already known: the main factor that determines a deal’s success at the moment is the borrower’s sector.
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John Thain still has a firm hand on the tiller at Merrill Lynch, but the ship is so badly holed that he has had to resort to throwing the cargo overboard. By selling $30.6bn of CDOs to Lone Star, Mother Merrill has abandoned all dignity and allowed herself to be well and truly worked over by the Texans. This is no sale but a thinly disguised giveaway.
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This is not a glorious day for Merrill Lynch, but many in the UK and Europe will envy the way it can just swoop on the market and increase its capital by 35% in 24 hours. That is possible because US shareholders lack the pre-emption rights UK investors enjoy. Those rights are a holy shrine of the UK capitalist system — but many would now like them to be curtailed or even eliminated.
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Yesterday was a big day for the US covered bond market, with the release of a Best Practices Guide by the US Treasury, with a fanfare designed by Hank Paulson to show top banks were backing the product. But a lack of guidelines has not been the market’s main problem — it is that investors are not so far offering issuers pricing that is attractive enough to get the market started. When a new deal establishes that level, the celebrations will really be justified.