Thursday, 19 July 2018

Lots of questions: answers still uncertain

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IFR editor-at-large Keith Mullin’s dispatch from ICMA in Berlin.

TO BERLIN, WHERE I attended a packed conference held by the International Capital Market Association, which provided a great opportunity to catch up with the great and good of the industry and chat around the edges of the formal sessions – which is where, of course, you always pick up the best gossip.

The ICMA folks always put on a good show and this year was no exception. This year, I was part of the proceedings, conducting an on-stage interview with the super-smooth Michael Reuther, a member of Commerzbank’s management board with responsibility for the bank’s corporates and markets division as well as group treasury. Michael’s been around for quite some time, so handled my cross-examination with style and deftly swerved my slightly rascally questions, which was probably just as well.

Our session had been a little choreographed, as you can imagine. Michael had been very relaxed and was originally more than up for my initial suggestion of “winging it” on the day, to the horror of his colleagues in corp comms who didn’t fancy the prospect of one of their most senior bankers being grilled by a rogue like me in front of an industry crowd – and in Germany to boot.

THE CONFERENCE SESSIONS covered the key industry talking points: whether the capital markets will be able to fill the funding gap left by bank deleveraging; prospects for bond markets and their ability to finance non-traditional risk; where we are in the crucial area of repos in a world in which the status of collateral has been raised to a new high; developments in German capital markets; and China internationalisation.

On the last panel, I was slightly bemused when Xuechun Zhang, chief Frankfurt representative of the People’s Bank of China, demanded she not be quoted on anything she was about to say. To a room full of people and a packed press room? Good luck.

On bond market diversification, I asked my by-now regular question as to whether the capital markets were in fact the best place to finance infrastructure. I’m sceptical that institutional fixed-income investors are ever going to get comfortable with wearing long-dated construction risk. Project refinancing? Sure. But we haven’t really seen clean pre-construction projects in the bond market and I don’t think we ever will in any size unless they come shrink-wrapped in layers of sovereign, supranational and contractor guarantees and first-loss protection and come with some spread.

But the answer I received was that the problem is not with investors or intermediaries; it’s the lack of project supply in Europe that’s the issue. If that’s the case, it should be a wake-up call for governments throughout the region to tap red-hot demand for anything with a bit of yield on it.

Of course, regulation was a core underlying theme, while the topic of SME financing – and securitisation – came up a lot, too. To be honest, while the discussions around the latter were engaging, I didn’t really come away with a firm conviction that the capital markets industry is 100% sure there’s a good match there.

Regulation was a core underlying theme, while the topic of SME financing – and securitisation – came up a lot, too

PAUL ACHLEITNER, CHAIRMAN of Deutsche Bank’s supervisory board, in a thoughtful keynote address, reminded the audience of the industry’s fundamental need to focus on risk. He told the audience they were all first and foremost risk managers, reminding us of the perils of separating revenue generation at the client-facing end from risk management at the back end.

That was then – in the BC years (i.e. “before crisis”) – but things needed to change AD (“after deleveraging”). He pointed out that once you take proprietary trading out of the equation, you’re basically left with a service-driven entity with the client sitting at the centre, which calls for a different approach.

The gala reception at the end of the first day’s proceedings was held in the imposing Deutsches Historisches Museum, founded by the-then West Germany and Land Berlin in 1987 to commemorate Berlin’s 750th anniversary. I bumped into a host of issuers, investors and of course Street folks over the course of the evening and we were treated to some great entertainment: waiters and waitresses who transformed mid-evening into a troupe of cool dancers, and a soul-funk band which was very popular with the small group of 30-somethings in the crowd. That, too, was just as well: middle-aged besuited banker-dancing ain’t pretty.

Most entertaining by far, though, was watching Hakan Wohlin valiantly attempting to deliver an actually and in fairness very well considered speech at the start of the evening about where we’re going in banking. (A bit of a tip, mate: probably not a good idea to compete for attention with food and drink, 500+ people chatting and a cavernous room with some serious problems with echo. But 10 out of 10 for your efforts!)

Prize for the most irritating exhibition stand goes to Fitch, which figured it would be a good idea to install a video golf driving range in an enclosed space. People spent all day smashing a golf ball into a projected image. Except that behind the screen was a solid wall so every ball produced a sound something like mortar fire.

If nothing else, though, it proved that capital markets bankers are genuinely inventive: I had no idea you could do so many things with a golf club.

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