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Tuesday, 24 October 2017

Forty years at the heart of international markets

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Thierry Naudin, a former associate editor of IFR, recalls the early days of the journal that became IFR – and the phenomenon that was founder Christian Hemain.

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Probably the best accolade IFR received over the course of its first four decades took the form of a casual remark by a Paris-based bond dealer, who thought IFR was the official gazette of what was then known as the Euromarket, instead of a profit-making publication compiled by professional journalists.

The bond dealer’s fantasy about some sort of governmental “invisible hand” points to the core raison d’etre of IFR, which has endured to this very day: publicising the cost of money on the international market, whatever the currency, the instrument (loan, bond, etc), the borrower or the maturity, and based on the most reliable sources.

Forty years on one could be forgiven for taking this basic rationale for granted. But building on it did take some vision – the rare mix of acumen and deep, broad-sweeping intelligence that characterised IFR founder Christian Hemain.

Why did it fall to a French correspondent with a Paris-based daily financial newspaper to set up in London a publication that, initially, focused on a market that was the purview of the then-almighty US dollar? The short answer is: that’s the transnational Euromarket for you. The fact is that on top of his enterprising spirit and superb professional connections, Hemain kept an eye on broader trends in the financial sphere.

The US dollar had become the world currency even before the lifting of post-war currency market restrictions in Europe in the late 1950s. The Continent became flush with greenbacks, not just because increasing numbers of large US industrial groups set up subsidiaries there. Rather, much as everyone around the world was keen to hold claims on the US (the world’s supreme economic powerhouse at the time), not everyone was as inclined to put their trust in Uncle Sam.

Weary as they were of the potential for their US dollar assets to be too closely monitored for comfort or frozen in New York or even London, Communist countries instead stored them on the Continent, in Paris for the main part, or in Geneva. A similar pattern emerged with African commodity-exporting countries after 1960, and with Arab oil-producing countries a decade or so later. The Eurodollar was born. Now, what about a market for it?

The problem with any government is that it can be heavy-handed, too. For all the efforts deployed by US bank branches in Paris and their major local counterparts at the turn of the 1960s and 1970s, French authorities denied the fully fledged liberalisation that the UK government, however grudgingly, came to concede for foreign exchange transactions.

London’s luck

France’s mistake was London’s luck. The big offshore-dollar game has hardly changed since then, with borrowers and investors alike ever happy for fresh opportunities to diversify, with fee-reaping banks in the middle.

Those countries with massive claims on the US today keep looking for ways to on-lend those dollars as profitably as they can (with the pursuit of ever-higher yields posing the threat of speculative bubbles, but that is another story). For the sake of its own geo-strategic security, Uncle Sam has from the start taken a benign view of what, in effect, amounts to the recycling of its own perennial external deficit as long as the process remains largely in the hands of American banks. And London, with its privileged location, stood in the middle, and has remained largely there to this day.

As London correspondent for the Paris-based Agefi (short for Agence Economique et Financiere) and its Swiss, Belgian and Luxembourg offshoots, Hemain understood the game early on. The price of money on national markets was publicised in national media, including official gazettes as in France. In this set-up, and by definition, offshore transactions fell in the middle of nowhere, and no one could be sure where to turn to for the price of money on international markets.

The mutualisation of transactions data that came with mandatory gazetting on a national scale had to be replicated for the benefit of a stateless, unregulated transnational market.

It took a strong personality like Hemain’s, with his cunning and boundless energy, to bring bankers to volunteer such information, persuading them that mutual disclosure through the dedicated, neutral information hub he was offering was to their own advantage: transparency was in order if these fledgling markets were to take off, which they certainly did for all the initial sputter-and-spurt.

From the early 1970s and until the mid-1980s, Hemain in his clipped French wrote for Agefi an increasingly comprehensive digest of the previous week’s transactions in the international loan and bond markets. It speaks to his professional dedication and his extensive contacts that when the Agefi foreign desk in Paris had to stand in for him during holidays, we were left struggling to cobble up something plausible based on newswire snippets and the odd, fragmentary, English-speaking column.

I felt sort of vindicated when, having joined IFR, I saw prominent media lifting some of our features and groundbreaking stories. IFR was where a weekly report on the then-fledgling swap market first appeared – a template for Reuters years later. Again in the late 1980s, the cover story of the launch issue of Risk magazine was only an extended version of an IFR exclusive based on a chat with the French director of an American bank over brandy and cigars. Those were the days.

In 1984, Hemain wrestled from Agefi the control over what since launch in March 1974 had been known as the “Agefi International Bondletter”. The basic rationale of “the cost of money on international markets” was perfectly subsumed in the new title he plumped for – International Financing Review.

The original stapled newsletter (starting “Dear Sir” and ending “Yours sincerely”) had just changed into a fully bound 30–40 page magazine in a yellow Pantone shade all of its own. This was when IFR’s enduring template was set out: the particulars of every single international loan and bond issue were published complete with details of their reception (nature and origin of buyers; tight, fair or generous pricing, etc), which all proved invaluable to investors, the secondary market, other banks and future borrowers.

As for IFR’s screen-based real-time news service on Telerate, it proved just as invaluable on a day-to-day basis: as soon as we announced a mandate, would-be members of the syndicate went into action and a deal could be organised in a matter of hours. IFR’s role as the market’s mutualised information hub was entrenched for good.

Investing in the future

Now free from the shackles of an, at best, indifferent majority shareholder that had frowned on his prescient purchase of state-of-the-art IT equipment, Hemain went on the lookout for a serious independent investor who could take the publication into a fresh new dimension.

After he sold it to Canada’s Thomson Corporation months before the 1987 financial crisis, off went his trademark “ChH” initials, and the new IFR logo became a stamp of authority on its own. By then Hemain had invested in the skills needed for further expansion. He delegated the daily editorial tasks to a small number of experienced journalists whose diverse nationalities came with multilingual skills, unique insights and privileged contacts.

As a result, Anglo-Saxon attitudes did not prevail at IFR any more than they did in the real world, which earned the publication a variety of scoops – including when, during the protracted Third World debt crisis, prominent Latin American finance ministers would grant IFR exclusive previews of their latest refinancing schemes.

In the meantime, Hemain stuck to his punishing Friday night routine at home, writing up his columns for Paris (including for Le Monde) and dictating to stenographers over the telephone – only to wake up mid-morning on Saturday to trail a sharp critical eye over the week’s freshly printed issue of IFR.

Beyond book-publishing and the annual rankings with the attendant “bulge bracket” of the 10 largest issuers, Hemain also began to invest in reputation-building.

Over the past two decades, IFR’s annual black-tie awards ceremony has been known as one of the industry’s glitziest social events – a stark contrast to the very first award, which Hemain in 1985 attributed to Euromarket legends Michael von Clemm and Hans-Joerg Rudloff. Hemain delivered the award certificate in IFR’s somewhat ramshackle offices off Moorgate, where staff in casual wear were too busy to bother as the publication was going to press overnight, the floor strewn with the boxes and packaging that had come earlier with a fresh delivery of IT equipment.

Hemain’s only disappointment must have been that hard as he, and others after him, sought to make fresh forays into other segments of the financial sphere, things never quite worked out.

The truth is that IFR’s winning formula proved well-nigh impossible to replicate. Futures and options markets were already transparent, as was the equity market, while in the early 1990s there was hardly any “market”, transparent or not, to speak of as far as the ECU (the forerunner of today’s euro) was concerned.

One exception was international infrastructure finance: ongoing expansion called for more transparency through an IFR-type newsletter, which did get off to a promising start only to be ripped away overnight by its young editor, who subsequently built his own niche publishing group. By then Hemain, after two decades or so in London, had moved to Canada, back to the manufacturing type of business where he had first cut his teeth in provincial France. He died in Montreal in 2005.

At the turn of the 1980s and 1990s, a would-be editor unsuccessfully proposed to ditch the listings and change IFR into yet another glossy, personality-oriented financial magazine – a switch from trading desk to coffee table. Apart from bringing down the publication’s successful economic model, the move could not have been more at odds with the ongoing shifts in the markets.

An expanding, ever-diversifying market needed more of IFR’s weekly and real-time listings. But the predominant influence of strong characters in the industry was on the wane: pricing was becoming a much more rational affair, turning from an art into a predictable technical routine.

Whether he had seen it coming or not before he left in 1987, Christian – as he was always known to all who worked with him at IFR – would probably have found this change was “tu borring” for him, as he might have quipped in his indefectible French accent.

But 40 years or so after Hemain launched it on the market, he might well have thought that IFR’s successful transition to the age of the internet did deserve his accolade.

Thierry Naudin is a former colleague of Christian Hemain at Agefi in Paris (1976–1984) and former associate editor of IFR (1984–1994). Thierry Naudin is now a consultant with an international organisation.

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