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.
But against this backdrop the world kept turning, and companies, countries, financials and individuals competed to secure every cent of available financing to keep the lights on. This year’s list of the world’s top 250 borrowers is testament to the innovation and flexibility of bankers and company executives in identifying and exploiting opportunities where and when they arose. Despite most markets being effectively closed for at least one quarter, and severely curtailed for much of the other three, levels are not much lower than the year before – though admittedly that year had itself been very difficult.
The fact that borrowing figures held up at all is thanks largely to the intervention of governments, which have taken on unprecedented levels of debt – an issue that is likely to dominate the political scene in some countries for years to come. While some fret that government borrowing has become crippling, it is almost impossible to envisage the alternative. There were times when it seemed the capitalist system itself was on the brink of collapse. Governments acted to prevent this possibility with massive direct investments in banks to shore up their liquidity, and by guaranteeing bank bonds to regenerate liquidity. In both instances they have been successful.
The next phase of the process requires financial institutions to be weaned from the governmental teat. This process has already started but it is too early to predict the outcome. Top tier banks have already shown an eagerness to repay government cash and government guaranteed issuance is on the decline. Covered bonds and senior unsecured debt are coming back to the fore – just as governments hoped they would. Compared to last autumn, companies have little trouble meeting their financing needs, and most have learnt to accept new pricing realities.
But the picture is not unequivocally rosy. As the recession bites, defaults and restructurings are on the rise – including a record-breaking settlement for General Motors that will have a serious political impact in the US. There are signs that recoveries will be lower in this cycle than have often been the case, so there is plenty of pain ahead for investors, companies and employees alike.