THIS IS MY final piece of the year, as IFR magazine goes into its short annual period of hibernation and as the fabled IFR awards are announced – our annual cue to run for the hills to escape any vitriol and venom from bankers convinced “I wuz robbed”!
I’ve got to say that after writing close to 100 columns and blogs this past 12 months, moderating a dozen roundtables, chairing half a dozen conferences, having suffered some harried travel arrangements, and writing a bunch of longer-form pieces – including a blockbuster 4,000-word extravaganza on the history of Japanese banking over the past 20 years that came close to doing me in – I’m exhausted.
What a year it’s been, though. The year ended with a Fed hike, a high-yield market in disarray and most of the world’s (non-US) banks entangled in ongoing restructuring programmes that’ll continue into 2016 and 2017 and whose results we’ll finally be able to see in 2018 – except we won’t, because they’ll have unveiled updated versions long before then (not brilliant for bank shareholders or employees but wonderful source material for bloggers and journalists).
Not everyone is going to be a winner or come out whole as the bank rehab process evolves
ON THE FED hike, all I’ll say is that it happened. The data didn’t necessarily justify it, but governor Yellen had little choice, having teed the market up in October. The next move could be down rather than up. That will call into question the Fed’s credibility but ultimately changes nothing. If the hike was supposed to silence everyone, it didn’t. The only thing that’s happened is people are now talking (loudly and persistently) about the next move and hike velocity, if that’s the direction of travel. Yawn…
On high-yield, again, not a lot more I can say that hasn’t already been said. The ructions seen in the market tell you that an asset class already hammered by energy and commodity sector woes as well as a distinctly more muted tone in the broader credit market was close to throwing in the towel and just needed one more news event. Third Avenue duly obliged.
The Focused Credit Fund wasn’t your classic high-yield bond fund; it was as much a distressed play. Distressed investing is, well, is what it suggests. Potentially distressing though often a good counter-cyclical diversification play. It’s a tough area of the market to get right all of the time and the fund had hardly been performing well.
Distress is in the firm’s DNA; its genesis is in bankruptcy and corporate re-orgs. The wisdom of offering daily liquidity when your underlyings are deeply stressed and illiquid has, yet again, to be called into question. But if my first point is that the FCF was arguably a poor proxy for the “clean” HY bond complex given its investment style, my second is that it didn’t need to be.
Credit has been a tough market of late so this all plays into the theme of wider spreads, greater investor selectivity and a sign that we’re shifting from a seller’s market to a skittish buyer’s market. Borrowers will have to exercise caution; positioning the early riders in the January primary debt stakes will be a fascinating spectacle.
OVER THE YEAR, I’ve looked in depth and detail at the strategic goings-on at Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, HSBC, Societe Generale, Standard Chartered, UniCredit and others. I’ve been pretty mean about a lot of them. I’ve commented on incoming and outgoing CEOs, senior hires, senior fires and management re-orgs. I’ve been particularly critical (read: disparaging and disapproving) of regulators – just like I was last year and in 2013.
It’s not just a case of being gratuitously unkind to everyone because I can be; it matters to me and all stakeholders that banks and regulators get this dance right. Redirecting the banking ship is a lengthy and intricate process. When I speak to the key actors and agents, I don’t get a sense that there’s any lack of conviction or determination. But I do get a little tired of the posturing and the speed of execution.
Not everyone is going to be a winner or come out whole as the bank rehab process evolves. Plans will fail. Plan Bs and Plan Cs will be concocted. CEOs will come and go. In that respect, banking is a bit like football. If performance sucks, it’s the manager who’s forced out the door.
True, the goalposts do keep shifting, rendering the process more convoluted. But the financial crisis is in the final straight heading towards its 10th anniversary and you’d be hard pressed to say the situation is in hand. Even with the greater quantum of capital now sitting in the banking sector, TBTF is still here.
We don’t know that new-style hybrids (AT1s and the like) and the bail-in model will function as expected. And resolution planning is still a work in progress. More to the point, the next crisis is hardly going to be a repeat of the last one, which is what policymakers are solving for.
But let’s not end on a down note. All of the above was so last year. I look forward to evaluating and commenting on the ongoing and fresh challenges the banking sector and the surrounding ecosystem face in the next 12 months. Wishing everyone happy and peaceful holidays and renewed vigour as we head into 2016.
