Thursday 31st July 2014
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THURSDAY TICKER: 31ST JULY 2014 - Standard & Poor's says Argentina is in selective default on foreign-currency-denominated debt, after the government failed to make a $539m payment on $13bn in restructured bonds. Argentina had transferred the money to the paying agent, but a US judge would not allow its release unless hedge funds holding bonds not included in a restructuring also were paid. The latest default is expected to exacerbate problems in Argentina's recession-hit economy, analysts say. This is the second time Argentina has defaulted on its debt in the last thirteen years, after last-minute talks in New York with a group of bond-holders ended in failure. Vulture fund" investors were demanding a full pay-out of $1.3bn (£766m) on bonds they hold. Argentina has said it cannot afford to do so, and has accused them of using its debt problems to make profits - In a regulatory filing made public earlier this week, and US press reports, BlackRock has begun the process of establishing a Wholly Foreign-Owned Enterprise (WFOE) in Shanghai. The firm is reportedly creating an investment advisory WFOE which will give it significantly greater flexibility and speed in executing its Greater China strategies – Shares in Chinese footwear manufacturer Feike AG have been listed on the General Standard of the Frankfurt Stock Exchange. Ten million shares have been listed at an initial price of €7.50. ACON Aktienbank AG is supporting the issue. Scheich & Partner Börsenmakler GmbH is the specialist. This is the third Chinese company to list on the exchange according to managing director Michael Krogmann. “With the IPO we have achieved an important strategic milestone. This helps us to expand our competitive position and our brand awareness in the booming Chinese market for children’s footwear as well as to realise future growth plans”, says Andy Hock Sim Liew, CFO of Feike AG - Funding pressures stemming from reduced central government capital grants and the persistence of tightened long-term bank lending are likely to fuel the English housing association sector's continued use of capital markets over the next two years, says Moody's Investors Service in a new report published today. The new report English Housing Associations: Financial Disintermediation- A One Way Trip, is the third in a series on European sub-sovereigns' financing needs and access to market funding.

20-20: Prime broking - balance sheet, funding strength now key

Thursday, 15 December 2011
20-20: Prime broking - balance sheet, funding strength now key Expanding Bank of America Merrill Lynch’s hedge-fund business ranks high on global head of prime brokerage Stuart Hendel’s agenda. “Clients want to do business with us in this area, and so that has been a key focus during these past few months,” he says. Stock prices in the banking sector have been pummelled of late, forcing players such as BofA (whose own shares are off two-thirds since the start of 2011) to address operational redundancies and affect changes where needed. Hendel, however, remains resolute. “At the end of the day, firms need to have a solid return on the assets they use to support these types of businesses. We believe our business is differentiated by the size and strength of our balance sheet—and how we can put it to work for our clients.” http://www.ftseglobalmarkets.com/

Expanding Bank of America Merrill Lynch’s hedge-fund business ranks high on global head of prime brokerage Stuart Hendel’s agenda. “Clients want to do business with us in this area, and so that has been a key focus during these past few months,” he says. Stock prices in the banking sector have been pummelled of late, forcing players such as BofA (whose own shares are off two-thirds since the start of 2011) to address operational redundancies and affect changes where needed. Hendel, however, remains resolute. “At the end of the day, firms need to have a solid return on the assets they use to support these types of businesses. We believe our business is differentiated by the size and strength of our balance sheet—and how we can put it to work for our clients.”

Rapid response a keystone of Stuart Hendel, global head of Bank of America Merrill Lynch’s (BoA’s) prime brokerage unit. When he signed on for the job, early in 2011, from two years as head of UBS AG’s prime brokerage division, he was certain that “anytime you join a new organisation, and particularly when it’s a global business and platform, you start by learning the landscape internally”. He adds: “You also want to ensure that you have the right people in the right seats and that they are supportive of the direction you want to take.” Most of all, says Hendel, you need to act quickly, as you don’t always have the luxury of time once you’ve taken the reins. “This is especially true on the sell side—I made a number of key decisions within the first 60 days.”

The ability to think on your feet in a highly-volatile market is a business imperative and a lifeline of sorts to clients under duress. Whether the news is good or bad is almost irrelevant, says Hendel, as there is only so much market turbulence that hedge fund managers can tolerate. “One day the news out of Europe is positive and the markets move accordingly, then the next it is negative and all bets are off. Therefore, the instinct is to just deleverage. Even funds focused on the macroenvironment can’t always handle being whipsawed like that.”

A cool head is equally vital; particularly as the constant need for hedge fund managers to address counterparty risk, though positive for the industry as a whole, has ultimately kept the sell side from focusing on the job at hand—that is, making money. “This is a sector that continues to deleverage, performance is down and prime brokers are fighting for market share,” says Hendel. “We have some considerable headwinds to contend with.”

Ambiguity surrounding political and regulatory solution—rather than the outcome of regulations themselves—only exacerbates the trend. Even then, there is some upside. “As strange as it may sound, hedge funds react better to negative news than uncertain news,” says Hendel.  “As long as this kind of climate persists, deleveraging will likely continue. In fact, market fundamentals appear to be the least important aspect in determining the health of companies, sectors or valuations.”

One downside of the current environment and inherent lack of investing conviction is the effect on market liquidity. Once clarity returns to the political, regulatory and economic landscape, the market should become more liquid, which will in turn benefit everyone. “Therefore, this is something that needs to be addressed in order to preserve the well-being of both the alternative space and the prime-brokerage industry over the long haul. We believe that once Europe gets its house in order and there is more clarity, that should help markets achieve some kind of foundation,” he says.

From his vantage point, Hendel sees a much greater likelihood of consolidation within the sell side than the buy side. “No matter what happens in Europe or with governments in general, we believe there is going to be a real need for the best and brightest to achieve superior returns on behalf of their clients,” he avers. “Certain investors are questioning the actively-managed, long-only business, but we are still bullish on the hedge fund space.”

Even then, Hendel says he is “flummoxed” by the perpetually thinning margins on banks’ leveraged-based book of business. “Pricing eventually has to go in the other direction,” says Hendel. “If it doesn’t, sell side firms may re-examine the returns being generated by the prime-brokerage business. In an environment where resources are scarce, all balance-sheet businesses may be vulnerable, not just prime brokerage.”

Hendel believes that market-exacerbated balance sheet weakness could ultimately threaten the existence of certain prime brokerage businesses over the near term. “Balance sheet and funding strength are areas that we believe will continue to be distinguishing factors for BofA—having a tremendous deposit base and excellent funding resources will allow us to properly service our clients going forward.”

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