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Islandsbanki will become the third Icelandic issuer to enter the market when its signs its euro750 million ($727.89 million) Euro-MTN facility next week. It joins Landsvirkjun and FBA Icelandic Investment Bank, which won MTNWeek's best new borrower award of 1999. Also, it is rumoured that Agricultural Bank of Iceland, which has been eyeing the market since 1998, is to finally sign. Olafur Asgeirsson, general manager in Islandsbanki's treasury, is thrilled to be joining such successful names. He says: "We are looking forward to participating in the market. We intend to do one or two public issues off the programme each year, but for the rest of the time we shall use it opportunistically." The issuer has yet to decide on whether it will launch a public inaugural deal but admits it is likely. Islandsbanki is Iceland's second largest commercial bank and the only one to be privately owned. It was formed in 1990. Last year it attempted to merge with Bunaoarbanki to create the largest bank in Iceland but the government stopped the deal. Islandsbanki still hopes to push the merger through. All issues off the Euro-MTN programme will be swapped back into either euros or dollars. Asgeirsson says: "These are our first steps in the market so we thought it would be good to get a full range of distribution. Yen is a possibility but it will have to be swapped back." Islandsbanki's competitors have found the Japanese market receptive to Icelandic issuers. Over half of FBA's outstanding issues are yen notes. In credit terms it is comparable to FBA, also rated A3 by Moody's. It has no rating by Standard & Poor's but is thinking of obtaining one in the future. Most of Islandsbanki's funds come from its retail deposits. But it has two five-year dollar FRNs outstanding in the public market and also relies heavily on syndicated loans. The Euro-MTN issuance will be mostly under five-years. Deutsche Bank is the arranger. The dealers are Bank of America, BNP Paribas Group, Chase Manhattan, Daiwa SBCM Europe and the arranger.

Nomura began roadshows this week for an innovative Eu1bn securitisation backed by Swedish residential mortgages originated by the Swedish National Housing Finance Corp (SBAB). In an extremely unusual move for a European securitisation, the deal will include a tranche in yen - and it may also become the first European ABS to be distributed on the internet.

Sri Lanka Standard Chartered has signed banks into the $30m 364 day trade financing for Bank of Ceylon.

It is often presumed that US houses dominate the Euro-MTN market. But with UBS topping MTNWeek's league table, and CSFB enjoying a bumper year this is far from the truth. MTNWeek has invited UBS's head of Euro-MTNs, Gavin Eddy, and CSFB's head of Euro-MTNs, Simon Hill, to debate the big issue of 2000: Is the structured market dead? To: simon.hill@csfb.com From: gavin.eddy@ubsw.com Dear Simon I think you'll agree whilst the structured EMTN market is not dead it is certainly suffering severe paralysis. And I don't think it's temporary. The percentage of structured business in the EMTN market has fallen from a peak of 44.13% in 1997 to 28.17% of total volumes in 1999 and a feeble 21.87% in 1H2000. The appeal of structured business clearly moves in tandem with the macro economic environment. And rising interest rates in the major currencies coupled with erratic equity markets accounts for some of the fall-off. But there seems to be an indisputable underlying trend: The EMTN market is in transition from being a structured market to being predominantly a generic credit market. There are plenty of potential reasons for this demise. One major factor has been the impact of EMU on previously fragmented national markets in eliminating arbitrage and therefore structuring opportunities. So too has the greater focus generally on credit risk rather than market risk as a strategy for yield enhancement. There are also growing numbers of corporates who are either not interested in, or are not considered suitable for structures (investors usually don't want to combine market risk with credit or event risk). For institutional investors the benefits of a bespoke EMTN may often be outweighed by its limitations. Liquidity for non buy-and-hold investors can be very limited and the bid/offer on the issuer credit spread can be prohibitive if you need to resort to the asset-swap market. Regulatory changes too, facilitating the use of over-the-counter (OTC) derivatives by investors, mean that structures can be more efficiently achieved OTC rather than embedded within EMTNs. Certainly there will always be a structured EMTN market. But gone are the days when issuers could name their price for issuing structures on the basis that flexibility and responsiveness are rare commodities. Increased transparency will also mean that the business that remains may become increasingly commoditized. To: gavin.eddy@ubsw.com From: simon.hill@csfb.com Gavin, thanks for the e-mail. No figures for structures as a percentage of EMTN flows are reliable, because so many structures are either mis-classified as fixed rate or are unknown. What is clear is that interest-rate structured note flows in Europe have dropped off dramatically, equity linked flows in Europe seem to have held up but are small in size, while thousands of structured notes are sold into Japan each year. The structured market is not dead. It is also clear that the proportion of flows where the investor takes credit risk are rising rapidly as more and more companies tap the market. Total flows for new issues, rated below Aa3 or AA-, in first half 1998-2000 were $82 billion, $123 billion and $184 billion respectively. Triple-A flows grew more slowly. These sub AA flows are almost entirely vanilla and are, of course, a core part of the EMTN market. You may be right in saying structured trade flows now form a smaller part of total flows than a year or two ago. So? The new lesser-rated issuers are adding to the EMTN market total and not subtracting from the structured market. There are still thousands of structured trades for the market to do - there's no need to shut down the MTN desk and and get a job on syndicate just yet! From an issuer's perspective, structured MTNs provide a lot more than just funding. They provide arbitrage funding, typically five to 10 bps tighter than the public market. The value added to issuers must be enormous. Let's estimate the size: assuming in 2000, X billion of structures with an average term (adjusted for calls) of Y years, and an average saving of seven basis points, that gives Z $billion of issuer side savings this year. Structures matter to issuers, some more than others admittedly, but they matter. To: simon.hill@csfb.com From: gavin.eddy@ubsw.com Dear Simon I agree that accurate data for the private placement market is hard to come by. However, I think it is fair to assume that year on year the percentage of trades not captured or incorrectly classified is fairly constant. In fact you might argue that the accuracy should have improved as the market has become more transparent. The trend suggested by the data is undeniable. Whilst not wishing to sound like a turkey waiting for Christmas, and no one would dispute that EMTN desks still derive a significant proportion of their volumes and revenues from structured trades, I think we should be looking to the future of the market not the past. Regulatory impediments to structured business are only likely to get more onerous not less. Witness the impact of FASB 133 on the US issuer's appetite for issuing structured notes. Signals that International Accounting Standards may adopt the same accounting principles will presumably have the same effect. Japan too has seen a significant reduction in institutional structured business since the introduction of new mark-to-market rules. Certainly one of the most robust areas of demand for structured products has been, and will continue to be, retail. However this business is not very diversified, dominated as it is by the equity reverse convertible market. As such it could arguably perish as equity market sentiment changes. Moreover, retail business is heavily concentrated within a small number of issuers. In Japan these are primarily the quasi-sovereigns and supranationals, and in Europe they're the investment banks themselves and bank issuers with their own retail networks such as BGL and Credit Lyonnais. Even assuming this area of business holds up, it still doesn't bode well for the numerous other opportunistic borrowers who are reliant on structures for funding. I don't dispute that structured business matters enormously to issuers. What I say is get it while you can because it may not be there forever. To: gavin.eddy@ubsw.com From: simon.hill@csfb.com Gavin You are right to say that institutional investors who wish to trade in and out of structures are best advised to buy either short dated notes or trade OTC when the primary-secondary structured MTN bid-offer spread can easily hit 25 basis points. I hope though that better market efficiency, such as more non-bank participation in the asset-swap market and inserting asset-swap style puts into the borrower's swap contract, will reduce this in time. However there are still some buy and hold institutions out there, and not all are able to separate investment into vanilla cash bonds and structured OTC products, because the risk of loss is greater than the principal invested. It's also easier to buy MTNs, and some regulators prefer an MTN to the cash/OTC combination because it is more transparent. Structures are exciting products for retail. They do useful things, such as giving stock market participation while protecting capital. So demand will continue though it'll have its ups and downs of course. Your argument that retail structured note issuance will be dominated by a few issuers is supported by current flows. But I don't believe it will win out in the long run as it implies that retail will be forced into buying expensive issuers rather than the funding being channelled to those borrowers that need the money. Then again, if a turkey can vote for Christmas. . . The opportunity costs of FASB 133 are heavy for US issuers. US issuers find cross-currency swaps difficult never mind structures. Some US corps financing local currency needs in the local bond market (especially yen and sterling) have lost millions versus the swapped-out cost of the US domestic market. If FASB was adopted internationally it would kill off the structured note market except for a handful of specialist issuers able to handle the accounting complexities and risk of P and L volatility. Scary thought. To: simon.hill@csfb.com From: gavin.eddy@ubsw.com Dear Simon So, does the structured EMTN market have a future? At its historical levels of activity I'd argue no. Volumes of institutional structured business will continue to fall, offset in part by retail business where the ability to package products is more important. The winners in the long term will be the credit borrowers and the bank issuers with their own retail networks. The losers will be the highly opportunistic issuers who will either have to cheapen up their levels or find themselves priced out of the market. However, I'm sure you'll agree that one of the enduring features of the EMTN market is its ability to adapt to change. Perhaps the current redefinition of the market is a little more fundamental than previous ones, but it is nevertheless something to be embraced. Rip up your CV, there's life in the EMTN market yet. To: gavin.eddy@ubsw.com From: simon.hill@csfb.com Unless the market manages to do something about the liquidity of structured notes, many institutions will continue to prefer to buy OTC structures rather than notes. For retail in short dates, it will be more convenient for the bigger distributors to self-issue, though the less consolidated the network, (eg Japan) the more attractive independent issuer MTN brand names become. In longer dates the spread effect of credit is powerful. So issuers like the GICs and the single-A corporates should increase in popularity, parallelling the growth of credit in the public markets. But, if FASB 133 style measures were implemented widely, the market would revert to a select number of specialized opportunistic issuers with the systems and the will to cope with the accounting difficulties.

Italian banks are creating their own niche in the market. Six have signed this year but they are a different breed to other European banks. They issue just a fraction of the huge volumes raised by German, UK, Dutch and French banks. But while others opt mainly for plain vanilla private trades, the Italians go for structures. And they favour mid-term maturities, avoiding one-year tenors almost completely. The 37 Italian banks in the market have raised $2.86 billion off 99 private placements this year. This is nearly double the 50 private trades issued in the same period last year, according to MTNWare. Consolidation is driving growth in the sector. An official at Banca Commerciale Italiana's (BCI) syndication desk says: "Mergers and acquisitions in the sector are creating substantial need. The structure of the Italian banking sector has been under pressure for about four or five years now and MTNs represent a good source of funding." But an official at Banca Monte dei Paschi di Siena (Paschi) points out that there are other factors driving the market. He says: "There has been a process of aggregation in the Italian banking system, but I wouldn't say it is the main reason for the signings. A drop in the profitability of senior paper is probably the most important reason." Italian bank issuers are losing their confidence in senior paper. The official at Paschi adds: "There is a decline in the potential of senior paper and the domestic network doesn't allow you to raise the volumes needed. There's a lot of competition and it doesn't allow you to squeeze the spread. Senior paper is seen as a losing game." Luca Favero, MTN desk at Donaldson Lufkin & Jenrette, explains that senior debt doesn't always make sense for Italian banks. He says: "Italian banks see more proposals from dealers for subordinated debt. For senior paper it is more difficult to match their targets with investors' expectations." Italian banks cannot compete with their similarly rated US counterparts, which issue senior debt at low prices. Favero adds: "The banking system in Italy is in an early stage of consolidation compared with other countries. The US banks cannot obtain very cheap funding domestically, so in the international market they are willing to pay wider spreads over libor. As a result, Italian banks find themselves competing with similarly rated banks that pay more to the investors." Daniel Cogoi, head of MTNs at BNP Paribas, suggests there is another reason why they are turning to the MTN market. He says: "Their retail network is getting saturated with their own bonds, both senior and subordinated. Although the price in the retail network is good for issuers, it can be exploited with more profitable products, typically funds." There is one area where Italian banks are especially making their mark. This year they have issued a higher proportion of structured private notes than any other banking sector, according to MTNWare. Typically, 25% of private trades issued by banks are structured. But Italian banks are more adventurous: 67% of their paper is structured. Italians have an accommodating attitude towards their investors. The official at BCI says: "Our investors want structures. They cost less. It's not a question of choosing structures, but giving the clients want they want. We do a lot of reverse floaters, reverse convertible and other more complex products linked to equities, equity baskets and equity indices." Cogoi, at BNP Paribas, agrees that this sector is willing to accommodate the investors' needs. He says: "They are active on structures because they are flexible: they do both interest- and equity-linked. They are also very opportunistic and ready to meet the investors' demands." But they are not so flexible when it comes to accepting different maturities. Just 4% of private placements issued by Italian banks have a maturity of one year or less. The average for the whole banking sector is 30%. Italian banks issue so few short-term trades because Banca d'Italia, Italy's central bank, regulates them closely and discourages them from issuing short-dated trades in the capital markets. They can also obtain short-term funding at sub-libor levels in the domestic market, which is cheaper for them than the euromarket. Banca Toscana, which signed its euro1.5 billion Euro-MTN facility in 1999, is typical: the majority of its issues have three- to six-year maturities. Silvio Bencini, chief financial officer at Banca Toscana, says: "We've done one three-year trade and some six-year notes because there is fixed tax on six-year maturities." Lack of short-term issuance also explains why Italian banks are almost entirely absent from the yen private placement market. Of the 99 private trades issued by Italian banks this year, just three have been in yen. Crediop issued all of them. Favero warns that there will be some work to do before Italian banks have satisfactory name recognition in Japan. He says: "Japanese investors don't know the Italian issuers well. They tend to go for state-owned European banks because they feel more secure." But some issuers would like to change this and branch out into the yen sector. BCI's official says: "Most of our buyers are Italian retail investors. They're not interested in yen. Of course we would like to have more sophisticated investors from Japan and outside Italy."

Keith Phair, head of MTNs at HSBC in 1996. Keith Phair left HSBC, where he ran the Euro-MTN desk, in 1998 just three months before the Russian crisis hit the market. But many MTN dealers remember him less for his immaculate timing and more for a television appearance he made. In March 1999, while he was out of the market, spending time with his family and watching his beloved Ipswich FC, he rang up the popular UK consumer affairs programme, Points of View. The programme has a slightly dubious reputation for encouraging viewers to voice their opinions about television programmes. And Phair looks vaguely horrified when it is pointed out that his complaint about a documentary being rescheduled was heard by many of his old friends in the market. Though he kindly does not pass judgement on the MTNers who spend their evenings watching the programme. He has subsequently made quite a few - far more respectable - appearances on television in his role as a banking consultant. Since joining The Bank Relationship Consultancy (BRC) as a senior consultant he has regularly featured on the CNBC business television channel talking about the capital markets. BRC was set up in 1989 and is based in slightly scruffy offices, which it shares with the Allied Bank of Pakistan, round the corner from the Tower of London. Phair, 46, joined in September 1999, a year after he left HSBC. His main role is advising borrowers, mostly medium-sized corporates, on how best to approach the capital markets. And he believes that the service BRC offers remains unique, with no real competitor. He says: "I think the consultancy market could be far bigger. A lot of issuers could do with external help. Issuers don't always get the best advice from MTN dealers and there is no external source of advice for these issuers to turn to." The biggest deal BRC has been involved in while Phair has been there is Marconi's debut in the international capital markets. The euro1.5 billion ($1.32 billion) Eurobond, launched in March 2000, was split into five- and 10-year tranches. But it was criticized at the time. One market professional says: "This transaction, and the consultancy's role in it, was not a success. Marconi knows it was a terrible deal." But Phair is quick to dismiss any criticism. He says: "The Marconi deal was a success especially considering that the telecom sector at the time was starting to fall apart and Marconi was a new name." And he sees his present job as similar to running an MTN desk. He believes that a thorough grasp of the market is necessary for both consultancy as well as trading. He says: "The good thing about MTNs when I was doing them was that it involved doing a bit of everything: sales, marketing, structuring, and understanding all the market. It was very interesting if you were in the right place. If you didn't have the right sales force or right clout within your organisation it was less interesting." He has fond memories of the early days of the Euro-MTN business. He says: "The MTN world has changed. In my day the desk was on its own or sometimes part of derivatives or secondary trading so it was easier to really build a business. Now the desk is usually tacked onto the end of syndicate." And he believes that the lack of autonomy MTN desks have now makes them a less innovative place. Finance was not Phair's first career. After a geography degree from Exeter University, he went on to complete an MSc in transport planning at Birmingham University. And with this qualification he ended up in a civil engineering firm working on traffic forecasts for the M25 motorway. He says he has no regrets about this initial career choice but does admit that when he joined the world of finance it did put him at a disadvantage. When he had been in banking for 10 years he looked around and realised that most of his contemporaries had as much as 20 years of experience under their belts. After a period working for a UK local authority he decided to pick up his third degree by doing an MBA at London Business School. This led him to his first banking job - at Bank of America. He started there in 1984 and worked for five years in syndicate and swaps. After this he moved to NatWest, where he got his first taste of MTNs, working alongside Chris Leaf. A market player who knew Phair at this time says: "He was someone with an alert and nimble mind. Just because something was done in a certain way didn't stop him trying a new approach." Soon he was hired to set up an MTN desk for Credit Suisse First Boston (CSFB). He took Leaf with him and he has no hesitation in saying that his stint working at CSFB was the most exciting time of his career. He says: "I built the desk up and I did it myself. And 1993 to 1994 was a very exciting time for the market. There were a lot of highly leveraged trades going on and a lot of big-sized deals to be done. And also it was a big time of change for CSFB. It was a stimulating place to work, with real quality people, many of whom are still there." It was at CSFB that Phair did what he considers to be one of his most memorable trades: a Dm400 million seven-year deal for Treuhandstalt, the agency in charge of privatising East Germany's infrastructure. But though the trade was launched in February 1994 he is surprisingly coy about revealing what made the trade so special. The furthest he will he go is saying that it was derivatives-linked. Phair's unwillingness to disclose details of a trade issued for a borrower that was dissolved at the end of 1994 betrays his fondness for the cut and thrust of the market. And he admits that without a Bloomberg screen he would be at a loss. He says: "I would miss the excitement of the market if I wasn't watching it every day." But he adds: "I don't miss the actual trading floor, however." And he makes it clear that he would not be interested in heading a desk again, despite some posts being snatched up for reputably enormous salaries this summer. He says: "No, I just don't fancy it. When you've seen the market from all angles for 10 years, as I have done, it just doesn't appeal."

Kevin Regan, head of MTNs at Merrill Lynch in 1995. One of the market players who knew Kevin Regan in the 1980s says: "He always struck me as a particularly impressive character. I am sure he could sell ice to an Eskimo." Regan smiles on hearing this and insists an arctic sales deal is not on the cards. But he says: "I suppose I am a natural salesman. I get excited by new things. As a banker you can never say you've done it all, because the business is always changing." He still believes this after 22 years as a banker. And he has one of the best sales jobs around. Since 1997 he has been co-head of sales at UBS Warburg. It is a job he relishes. Uncomfortable talking about himself, he only relaxes when he is demonstrating UBS's F-18 sales system. Named after the fighter plane, it is a screen-based tool that links up all the possible information about the 13 different asset classes. He says: "I don't think our F-18 front-end system approach exists anywhere else. There is probably no other trading floor where you click an asset box and all of your screens reconfigure to bring up live information within that asset class, including axes, prices and direct communication with the trader, global sales and global clients." Before F-18, most of the sales team tended to concentrate on two to five of the asset classes. But Regan claims they can now be specialists in all the fields with the help of the system. With MTNs being one of the 13 asset classes, he still keeps a close eye on the market, saying he retains a soft spot for the product. He has long been heralded as the inventor of the Euro-MTN though many feel that Merrill Lynch, where he worked between 1984 and 1996, should share the credit. One of the crucial developments, in Regan's view, was the rapid development of the derivatives market, which allowed aggressive issuers to pursue opportunistic funding. But also important was the deregulation of European currencies, allowing, for example, a UK issuer to issue in French franc. He says: "It was an unusual time. Deregulation was allowing the market to exist rather than the market being pushed by either borrowers or investors. And then it just snowballed. It became easy to allow an issuer to do all its multi-currency needs off one programme." Merrill Lynch realised that if it was the first to work with the central banks to allow deregulation to happen it could dominate the market. And for a while Merrill Lynch did dominate the market, with Morgan Stanley its only real competitor. Regan thinks that this was the most exciting period of the market, because two top houses were competing aggressively and doing what the Euromarkets have traditionally been strong at - innovating. But he insists that the MTN world is far from dull now. He says: "I don't think that the market is less innovative now. It's just that there is less to innovate. But the credit angle is exciting. And there's a lot of work still to be done. Issuers need to be less absolute in their approach. There has to be a halfway house between launching a $1 billion benchmark once a year off your programme and sitting there posting sub-libor levels for opportunistic issuance. This is the most interesting opportunity for the market. And it is the least exploited." And his sales expertise means that he can now see the market from an investor's perspective. He says: "There has been a huge development of the corporate bond market in Europe. It's very exciting. Two years ago many of the large fund managers in Europe still had domestic investment parameters but the need to adopt a credit culture has been compelling." And for the Euro-MTN market, says Regan, this is a good thing.

Josef Nägel, the man who has been running the Neuer Markt for the last 2-1/2 years, left the Deutsche Börse this week after surprising the markets with an abrupt resignation. Nägel's last day was last Friday. Nägel, 40, was head of primary markets at the Börse, meaning that he ran the Neuer Markt and the Smax small-cap segment. He was instrumental in the meteoric rise of the Neuer Markt from its foundation in March 1997. Although the Nemax all-share performance index has fallen 45% since it was at 8,583 in March, the high growth exchange is gaining international acclaim as more companies from outside Germany list on it. As Nägel told EuroWeek in July:

The prospect of further consolidation in the cement sector arose last week as bankers speculated that there could be a bidding war between Lafarge SA and Holderbank Financière Glarus AG for Cimpor SA, and with Cemex's acquisition of Southdown Inc. Holderbank (unrated) bought a 2.6% stake in Cimpor (BBB+) from the Brazilian cement group Camargo Correa, after a joint bid with Semapa was rejected by the Portuguese government in August. Holderbank may now seek to form an alliance with Banco Comercial Portugues and Teixeira Duarte.

And then there were two. Frair Appelby-Walker has jumped ship, leaving the Barclays MTN desk looking rather sparse with only Apostolos and a chum to man the decks. Rumour has it Frair could be popping up on another MTN desk in Canary Wharf soon, but Leak doesn't want to Witter on about it. And MSDW's Klaus and friends claim to know nothing. Not being one to hang about, the ex-Barclays gal had a leaving party in Canary Wharf last night, with, among others, CSFB's CP-er Louise Mason who left Barclays a month ago. But the camera-shy girls were on the lookout for the Wharf's yellow canary, who often flies in to be photographed with leavers. CSFB's Simon Hill wasn't there to defend Louise and the others from the Wharf's big bird as he was clinking champagne flutes with JP Morgan's party girl Gayle down at Kensington Palace. This was the venue for Nordic Investment Bank's annual bash, courtesy of the Norwegian ambassador - as if MTNers aren't spoilt enough. Goldman Sachs has finally got its act together. The desk has been in limbo since Carolyn Coombs left before Christmas. But Alexis Renard is set to announce the new line-up today, so watch this space. And congratulations go to Luca Favero of Lehmans who tied the knot earlier this month. No doubt there'll be a few hearts breaking in the market. Will Leak ever find a MTN pin-up to replace him?