Fashion can be a cruel mistress, especially if you’re the only person to turn up at the party with platform sneakers, a tracksuit with “Juicy” scrawled across the derriere, and a green feather boa. Banks are experiencing their own fashion faux pas right now and working hard to maintain their appeal.
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In Europe, a revival of securitisation is almost fully rehabilitated and now being touted by many as the product that will save the corporate world from a credit crunch by providing bank lenders with an offload facility. What are the prospects for this much-maligned market?
Lumpy. Buyer-friendly. Aggressive. Frothy. Boundlessly contrary. Syndicate managers use many words to describe the high-yield market this year, but ”uninteresting” is not one of them.
Primary market debt issuance has surged in Europe this year, and some banks have built out their resources to respond. But doubts still remain over whether the issuance bonanza is a long-term trend or a temporary reprieve from the doldrums of the past few years.
Infrastructure finance in Europe has attracted more than its share of interest from new investors in the past two years. Now, it’s luring a certain type of veteran player out of retirement: banks.
A thriving, liquid secondary bond market was a available in the developed world before the financial crisis – it still exists, but the size of the market has shrunk as liquidity has drained from it.
Rapid growth in the Green bonds market is fuelling debates about standards that ultimately ask what projects are, in fact, really “green” and what is the best way to grow them.
Like schoolchildren rushing to finish their homework, Europe’s banks are in a frenzy to raise Tier 1 capital ahead of the implementation of the latest Basel bank compliance rules.
An increasingly estranged relationship exists between European banks and the companies they once funded.
Emerging and frontier market bond issuers have been taking advantage of abundant liquidity but investor appetite may be cooling as warnings about debt grow.
Private placement remains tiny in Europe compared with public markets, but is growing fast. Smaller and unrated borrowers have been looking for alternatives to ever-scarcer bank loans, while cash-rich non-bank financial institutions, such as insurers, have been looking for new investment opportunities. On paper, it is a match made in heaven but the market remains highly disparate and to flourish it needs greater consistency.
Despite ECB blandishments, Basel III requirements mean banks remain loath to lend to SMEs. But the direct lending market is booming.
Regulation is making derivatives more expensive for corporate and public-sector borrowers, to the extent that banks must offer cost-effective hedging to win bond mandates. Meanwhile, corporate use of collateral agreements is increasing as a means of reducing the cost and risk of derivatives.