In the little world of Sol Capital, Wednesday was dominated by two subjects – a look ahead to today’s ECB meeting and the launch and pricing of Ferrari’s €500m seven-year bond. Despite our passion for Maranello’s finest, we took a very cool and considered look at the deal and liked what we saw.
Scuderia Ferrari
We heard stories of the packed road-show and how even the smallest of investors were busily filing feed-back reports to the leads in order to improve their chances of being considered in the carve up. Pricing looked tight and many of the larger institutions were obliged to pass - this was the debut issue for an unrated issuer. Picking the correct spread was going to be a bit like pinning the tail on the proverbial prancing horse.
There were plenty of jokes about possible pricing based on the long list of past Ferrari models, ranging from the 550, the 308 and the 250 GTO but even the very first of breed, the legendary 166 Inter- Enzo’s first road car - would not have done. Initial price thoughts had been mid-swaps +160bp but when the deal was announced at mid-swaps +140bp, we detected wobbles. Not necessary as the issue was immediately quoted in the grey market at a premium and by the time it broke syndicate and began trading, leads were bidding nearly a full point higher in order to get bonds back.
My thoughts were drawn back to October 2014 and the fiasco surrounding the Adidas deal – I understand that at the time there was a picture of me on Deutsche Bank’s dart board – and how a well-known brand with no rating and no existing curve should and should not be handled. I take my hat off to the lead management group and also to the borrower for behaving professionally during the pre-marketing and pricing process. Enzo would’ve been proud. Bravissimo!
And then, the ECB.
I was catching up yesterday with a senior rates chap at one of the big New England houses – think Boston rather than Greenwich – who phrased it neatly by saying: “I hope they disappoint”. Consensus seems to be that the deposit rate will be cut from -30bp to -40bp although some suggest that it might go to -50bp exactly in order not to disappoint, as it did at the January meeting. I suggested in yesterday’s column that the central bank is sailing downhill with blinkers and without brakes and I stick with that opinion. There is also talk of the bond-buying programme being revised to include corporate bonds. Institutions I spoke to are not expecting this move yet but if the ECB wants to cause a surprise without going hell-for-leather on the rate front, this does remain an option. I would ascribe more of a possibility than a probability to it occurring today but the thought must be included in one’s thinking.
All that said, disappointment and non-disappointment are not the currency in which the monetary authorities should be dealing. Slashing rates left, right and centre has achieved precious little so far – it certainly hasn’t fuelled inflation in the way St Mario had promised - and I’d have thought that, given the wealth and range of experience of the members of the Governing Council, it should not be a one-trick pony.
Primary colours
Meanwhile, the US nomination show rumbles on with a “gloves-off” punch-up between Hillary and Bernie. With Michael Bloomberg having declared himself a non-runner, the dynamics have changed yet again. The fight will be, now that the Donald is beginning to look invincible on the GOP side of the equation, for the Republican voters who cannot imagine voting for him. The centre-right hates Hillary but has no trust in the left-wing Sanders. Bloomberg would have suited them but he, quite rightly, feared splitting the Democrat vote too. Can a disaffected, educated Republican vote for Hillary? Or does he or she simply abstain?
November 8 is not only about the White House with a third of the Senate, the entire House and umpteen Governors up too. People will turn out and, when push comes to shove, barely vote in the other cases while failing to tick a box in the Presidential race. We found in the UK elections of last May that the pollsters were way off, subsequently explained as a case of those who were polled not admitting their true voting intentions. I expect something very similar in the US this year and I will therefore not be surprised by any outcome. I was living in the US in 1980 when Ronald Reagan, the B-movie actor, was elected to the White House despite nobody wanting it. He went on to become one of the most loved presidents of the 20th century and even named an aircraft carrier after him.
My deep-seated dislike for Barry O’Bama is no secret – I would have supported Hillary in 2008 – and I well remember the way his visits to Europe before he was elected were treated like the Second Coming. I don’t much like the prospect of a Trump presidency but I have faith in America as a democracy to be able to survive a political hiatus. Maybe a Trump White House is what is needed to remind Capitol Hill what it is there for, something which it currently seems to have forgotten.
Anyhow, England plays Wales at Twickenham on Saturday so there are much bigger fish to fry.