The Euro-MTN and Euro-CP community converged on London's Grosvenor House Hotel this week for Euromoney's sixth annual MTN and second annual CP conference. During two days, seven panel discussions and 15 workshops, the biggest names in the business thrashed out the issues that have dominated the market. And the importance of league tables, the value of internet trading sites and the reliance on rating agencies were some of the prominent topics open to debate. The first day was devoted to CP and UBS Warburg kicked off the proceedings with its discussion on how Euro-CP fits into the picture of short-term funding. The panel asked the audience whether it thinks dealers make enough fees in Euro-CP. Several issuers in the audience definitely thought so. But James Marriott, head of Euro-CP trading at UBS, and chair of the panel, disagreed. He said: "It is a contentious issue in the market. I don't believe that Euro-CP desks are sufficiently rewarded. I think we should follow the US model where issuers tend to keep to their dealer panels, fees are between three to four basis points and fee cutting is not a question." Keith Richardson, treasury operations director at Tesco, who joined Marriott on the panel, does not begrudge the fees that Euro-CP dealers charge. A standard fee for a Euro-CP desk is about one basis point and he told the audience: "I think dealers are fabulously good value for the fees they charge. I could not employ someone to do the job they do for the price we pay them." The rating agencies quickly came under fire in JPMorgan's workshop on issuer credit characteristics. The talk questioned rating volatility and Enronitis was high on the agenda. But Monica Klingberg Insoll, senior director, corporations at Fitch Ratings, was more than happy to calm issuer and investor fears. "We try to take a longer-term view rather than jumping up and down when the market changes," she said. "But although we have good access to issuers' accounts we cannot rate against fraud." Dierk Brandenburg, credit research, global portfolio management at Deutsche Bank, who spoke alongside Klingberg Insoll on the panel, is worried about the level of reliance on ratings. And, although Brandenburg is content with the rating system, he urged investors to pay closer attention to in-house research. "Ratings are very important," he says. "A credit rating gets the issuer through the investor's door but that is where our reliance on the rating stops and our own personal research takes over." Brian Martin is global head of research at Barclays Capital and he took us around the world in 50 minutes with his workshop on short-term interest rates. Martin is optimistic about what he calls a stagnant Euro-CP market, and he predicts that future growth in the global economy will help to alleviate pressures. He says: "We are looking at an upbeat environment for the rest of the year. In 2003 economic growth in Europe will move back to 2.5% and people will wonder what on earth this current recession was all about. Low interest rates have left us with a rosy environment with which to settle market conflicts." But in the final discussion of the day, which tackled the CP market from an investor's perspective, Paul Gibbs, head of treasury at Threadneedle Investment Services, was not so sure. He said: "I wouldn't be surprised if the market took longer to come back. Enron has created fear and that will take a long time to go away. I think the market will remain flat for a while." The rating agencies got more criticism on day two of the conference. MTNs took centre stage on the second day and during one of the morning panels, on strategic MTN investing, Forough Long, head of fixed income at Cornhill Investment, shared the fears she has with the rating agencies. "We look at rating agencies as indicators but since Enron we do our own homework. Rating agencies do a good job when everything is rosy but when things are bad they are less convincing." Bas Snijders, director of funding at SNS bank, who chaired the discussion, agrees. He says: "Rating agencies and research are a sore point with all of us. There is a lot of work to be done there." Japanese investors have been noticeably absent from the Euro-MTN market over the last few months and Mizuho hosted a workshop to try to help issuers target Japanese investors during these difficult market conditions. David Roberts-Jones, primary and structured finance at Mizuho, was confident that this could be achieved. He said: "It is very hard to find a reason why Japanese investors should avoid the structured market in Euro-MTNs." Roberts-Jones believes that there are a few simple ways in which issuers can help themselves. He maintained that while Japanese investors certainly communicate in English, issuers should try to translate documentation into Japanese and make their MTN prospectuses freely available on company websites. He also urged issuers to look at smaller trade sizes and consider open mandates. Henry Nevstad, head of Euro-MTNs at Dresdner Kleinwort Wasserstein, (DKW) asked who let the dot out? in his workshop on technology platforms. The market has still not taken to the idea of internet trading and Sean Park, global head of syndicate at DKW, who joined Nevstad on the panel, does not think that the market's attitude will change in the near future. "There has only been disappointment so far after the hype," he says. "There was an expectation that technology would revolutionize the market - but it hasn't. I'm not sure what benefit it can bring to the market we are in today." Frank Czichowski, first vice president, head of capital markets at KfW, agrees. "The platforms that have been built have not evolved into anything meaningful and I don't think that they will. They are a dead-end road." But Gavin Eddy, head of Euro-MTNs at UBS Warburg, which is one of only two banks to have developed a trading platform, thinks a little bit differently. Eddy was one of four heads of desk put in the firing line in the final discussion of the conference and he believes it is only a matter of time before the market will have to come to terms with the idea of an internet trading system. He says: "Doing a transaction over the internet costs a fraction of what it costs now. It will be the main form of execution in times to come. But for it to be truly successful we need a single platform and the banks need to get together - this is not likely to happen soon but that is what is ultimately desirable." The panel also broached the tricky subject of league tables and asked the audience how important league table positions are when they come round to choosing their dealer panel. Nearly one-third of the audience said it was not important but 66% said it played a very significant role in their decision. Nevstad, at DKW, says: "League tables are all well and good. Everyone hates them but it is clear that potential issuers use them." He added: "Everyone is doing league table trades. They are not economical to the bank but that is the way the market has developed. And it is unfortunate, as this makes the data that issuers are using, when choosing their dealer panel, distorted."
April 12, 2002
