Welcome to the first Reuters Publishing Islamic special report – produced by journalists from IFR, PFI, Acquisition Monthly and IFR Securitisation Report. This is a truly global effort to capture the up-to-date picture of one of the world's most important capital markets, in detail.
It has been an extraordinary year for the debt capital markets. Just over a year ago the world economy flew so close to the flames that it seemed like complete meltdown was the most likely outcome. In the aftermath, most markets ceased functioning in any meaningful way. The loan markets went into a paralysis from which some are still tentatively emerging, while even those that resumed business more quickly have shrunk. The equity markets went into freefall, and though they have since bounced back, opinion is sharply divided over how sustainable that recovery is. Even the bulls would have to concede it will take years before they get back to where they were.
If you set out to prove the decoupling hypothesis, the idea that Asian markets are now sufficiently distinct from the US and Europe to be insulated from the global financial crisis, you could do worse than starting with India.
The derivatives industry has found itself at the centre of the debate about regulatory reform, an issue that remains at the top of the international agenda. It can have no complaints about this: CDS played a massive part in whipping up the storm that engulfed Lehman Brothers, and would have claimed other high-profile and economically devastating casualties in AIG, Citi and others, but for the costly government interventions. While many argue derivatives did not cause the crisis, it is hard to argue they did not exacerbate it.
How different the world looks in just 12 months. The National Champions of the European Capital Markets 2008 report was published just days before the collapse of Lehman Brothers – the event that became the defining moment of the financial crisis that had started with the credit crunch one year earlier. It is hard to identify an event more seismic for banking – in Europe and globally.
More than at any time since 1998, the last year has seen the IMF and World Bank in the dock. In one sense the crisis has given them a new lease of life, a new relevance. As the crisis has unfolded, the IMF has been given greater funds to cope with an expected spike in demand. It has worked hard to shed the traditional stigma attached to IMF aid, and created new support packages – acknowledging that, with aid as with so much else, one size often does not fit all.
Turbulence of the type experienced in financial markets in the last 12 months has a habit of turning things on their head. Banks have needed an iron grip to hold on to their rankings in the capital markets businesses they participate in. In the first half of 2009, reputation has counted for little: there has arguably never been a better time for smaller and medium sized players in any business to make a play for the big time.
Good use was made of Equity Capital Markets in 2008 as companies, led by financial institutions, rushed to raise funds and secure their futures. As the global economy continued to falter in 2009, that need has only increased, with a broader spread of corporates desperately seeking funds to survive.
It has been the most difficult 12 months in living memory for financial markets. Compared to the period following the collapse of Lehman Brothers last September, the previous chapter of the crisis – the credit crunch that began in the summer of 2007 – seemed positively mild. The period covered in this report was one of frequent illiquidity and ongoing concern about who would follow Lehman into financial oblivion.
It has been a long, cold winter in the financial markets. The land of the covered bond has been as bleak as anywhere, with issuance in 2008 and early 2009 reducing to the merest of trickles. In 2008 there were questions about whether the covered bond market could ever regain its relevance after the emergence of the government guaranteed market robbed it of its natural investor base.
The financing of Abu Dhabi’s ambitious Formula 1 racing circuit will bring significant benefits to the Emirate’s rapidly growing economy. By Jody Waugh, a senior associate in the banking and finance team at law firm Al Tamimi & Company.
Bond markets have experienced an issuance bonanza this year, with both the size and frequency of deals in the ascendancy. Triple A activity has traditionally been frenetic in the first quarter of the year, with much of the issuance from the major agencies coming near the start of the year. There has, therefore, been a lot of Triple A paper knocking about in the first months of 2009.
The downturn has not been comfortable for Turkey. Exports are collapsing. Unemployment is high, at around 15%, and rising. Youth unemployment, at around 25%, is particularly worrying, undermining one of the macro economic factors Turkey has going for it – its young population. It is in the process of negotiating an IMF loan, a stark reminder of its economic problems. And it has an illustrious history of economic problems morphing into political ones.
If only financial crises were more discriminate in the havoc they wreak. Unfortunately for Germany, the downturn has had scant regard for economic justice: the prudent savers and the hard workers have seen their economies savaged with vigour that is almost indistinguishable from what has been witnessed by the spendaholic Anglo-Saxons.
Central and Eastern Europe* – a collection of countries that are as economically diverse as they are geographically close. As such, the region offers a fascinating laboratory for an analysis of the global downturn.