IFR’s 2021 German Corporate Funding video call took place on June 16 with a stellar panel comprising issuers from Volkswagen, Deutsche Bahn, and Bayer; investors from Allianz Investment Management and DWS; and investment bankers from HSBC and Commerzbank.
The speakers were in contemplative but cautiously positive mood as Germany, like the rest of the world, takes its first steps to move beyond the public health and economic crisis and looks ahead to ride the recovery and define the ‘new normal’. Bear in mind that many of the factors at play in the economy and financial markets were already in play pre-Covid. Technical factors such as negative bond yields as well as broader business trends, such as changes brought about by digitisation, e-commerce and new technologies are bringing different impacts to bear on different industry sectors.
Speakers talked of how robust the system proved itself to be, save for a couple of weeks of severe market volatility in late March 2020. They also talked of the need to learn lessons from the experience of the latest crisis, including how the past 18 months may have altered thinking about globalisation and complex supply chains. They voiced solid support for the exceptional monetary and fiscal support that emerged quickly to prevent the situation from spiralling out of control when the pandemic roiled markets.
Of course, there are some thorny issues arising from the past 18 months, like how central banks deal with rising inflation as economies move into recovery mode, how they start to taper and what signals they respond to. The perceived wisdom is that current higher inflation is transitory but the need for vigilance is paramount.
This time around, banks worked in partnership with governments to operationalise support schemes and guarantee programmes. Asset-quality deterioration has been muted thus far, but some support schemes have been extended so the full impacts have yet to be seen although the evidence suggests that mass delinquencies have been avoided.
The borrowers on the panel took different steps to protect themselves, but the steps they took were definitive to ensure access to liquidity and to protect balance sheets. Their experiences were largely positive.
Ditto the investors on the session, who exercised caution, not jumping on opportunities presented by market volatility but taking selective opportunities to invest where they perceived value while always being wary of downgrade risk. If central banks have, to a large extent, helped neutralise default risk through their actions, downgrade risk is still present.
Bankers stood by to assist their corporate clients gain access to emergency funding and back-up facilities where required, while capital markets have proven to be extremely accommodating to all but the most adversely affected borrowers. They have been assisted tremendously, it must be said, by the almost guaranteed presence of a buyer of first and last resort – the ECB.
So what will the legacy of the pandemic be? One speaker suggested that when people are asked in 10 years’ time what they think about the Coronavirus crisis, their response will be less about the health aspects but more about the changes it has brought about. In technology, in finance, in industry, in regulation and in economic policymaking. Now that’s something to ponder.
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