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February 1, 2012
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Essential News for Credit Portfolio Management Professionals

IACPM Weekly SmartBrief Special Year-End Report featuring:
  • An interview with IACPM Chairman Derek Saunders, Global Head of Portfolio Management at HSBC, with his thoughts on the key issues facing our industry and the outlook for 2012.
  • A recap of the top 12 stories most-clicked on each month by our readers during 2011.
  • A look at some of the interesting events and programs the IACPM has planned for 2012.
  • A conversation with IACPM Chairman Derek Saunders
    IACPM Chairman Derek Saunders
    With an eye on what lies ahead for the industry, SmartBrief Editor Sean McMahon conducted an e-mail interview with IACPM Chairman Derek Saunders. Saunders is the Global Head of Portfolio Management at HSBC and he shared the following insights:

    1. What are some of the trends you see developing in international credit markets in the next year? How do you see credit portfolio managers responding to these changes?

    CPM is extremely well positioned to be able to respond to the challenges of the current environment. The financial services sector is generally experiencing increased costs - a trend that is likely to continue as the new regulatory frameworks are progressively implemented - the cost of credit and the cost of funding are two key areas being impacted for many of our members. CPM is though at the center of much of the decision making, whether at a transaction level or at the more holistic franchise level, and that is a strong position to be in. Increasingly, CPM has senior management's attention; our members are able to deliver sophisticated analysis and informed views that help with the strategic decisions that need to be made in the medium term. This is the sort of value add that is key in an environment where there is an increasing polarization of our markets.

    2. We've seen credit issues surface for countries around the world. Looking ahead to 2012, what regions or countries give you confidence? Any that make you cautious?

    Although corporate balance sheets are generally perceived to be strong, history demonstrates that default levels increase as a financial downturn normalizes - this is an area where we need to remain diligent in the medium term. Volatility around the ongoing Eurozone situation remains, and full resolution will take years to work through - there is no quick fix - although many commentators are now of the opinion that a solution will be found. Add to this a global geographic re-balancing and there is plenty to keep portfolio managers busy in 2012.

    Other areas to watch include ongoing developments in the Middle East, whether it be post Arab Spring politics, restrictions in the flow of oil or the sustainability of growth in some emerging markets that have been particularly buoyant recently. The stronger geographies remain Asia and China, with the U.S. still displaying the 'green shoots' of a recovery. There are many who would point out that there is no recent precedent for an ongoing dislocation between the European and U.S. markets. Given the long-term nature of a Eurozone recovery, I for one, hope that this turns out to be different.

    3. The interbank lending markets have seen strain in 2011, particularly in Europe. How do you see that situation evolving in 2012?

    Given the current intervention and the importance of liquidity in the wider market, steps are likely to be taken to ensure that liquidity does not become a material issue in 2012 - this does though assume that the somewhat binary position in Europe remains on the path of a managed solution, as most now anticipate. It would not be unreasonable to have expected to see interbank lending rates tighten more than they have following the recent ECB support. But the ECB action has effectively 'underwritten the wall of fear' in Europe and this is a positive development. Confidence is key.

    4. How do you see the various directives of Basel III taking shape in 2012?

    The new regulatory framework is already impacting the wider market and will progressively do so throughout 2012. The question is: Will implementation continue at the pace currently indicated in light of the ability of the underlying real economy to absorb the impact? Will a broadly level playing field materialize as the U.S. proceeds with its stated implementation strategy? Time will tell. On proposed changes to the funding and liquidity rules, which have been set out at a high level, however, there are some material details still to be fine-tuned - hence the consultation process underway. The outcome of this could be significant.

    5. Given the above conditions, how will the IACPM evolve to best serve its members?

    IACPM has grown rapidly to 90 member firms in short order and both the internal and the external environment for our institutions is very different in today's world. In recognition of this, the Board has just completed a strategic review that will position IACPM for the medium-term. It will enable us to focus on the core areas that are important to our members and prioritize resources accordingly. In addition to increased advocacy around important regulatory issues, there are a number of additional exciting initiatives that will be announced at our next General Meeting. I look forward to discussing these with you all in Madrid.

  Top Stories of 2011 
  • The news that made 2011
    We've compiled a list of the most-clicked stories from IACPM Weekly SmartBrief for each month of 2011. LinkedInFacebookTwitterEmail this Story
  • December: Basel Committee targets loopholes in liquidity rules
    The Basel Committee on Banking Supervision is looking to close possible loopholes in its rules to improve liquidity at financial institutions. Officials are discussing assets banks can count toward liquidity reserves, said committee member Sabine Lautenschlaeger. Regulators are also talking about how to prevent arbitrage aimed at sidestepping the rules, said Lautenschlaeger, who is also vice president of Germany's central bank. Bloomberg (12/22) LinkedInFacebookTwitterEmail this Story
  • October: Financial system is on verge of credit crunch, analysts say
    Analysts warned that the global financial system could be facing another credit crunch, as credit default swaps on banks worldwide reach fresh highs. In the past two months, the cost of insuring debt of banks in China, Australia and elsewhere has surged. "The money ran out in June, and what you are seeing now is the beginning of a new credit crunch, except this time it will be truly global, not Western," said a senior credit analyst in London. The Telegraph (London) (10/2) LinkedInFacebookTwitterEmail this Story
  • August: Global banks attack capital guidelines
    Two industry organizations that represent some of the largest banks in the world, including Deutsche Bank, JPMorgan Chase and Citigroup, voiced concerns about new capital guidelines. The groups warned that the guidelines could harm economic growth, alter the financial industry's competitive field and reduce lending. "There is a real tension between the regulators and the largest global systemically important institutions," said Margaret Tahyar, a partner at Davis Polk & Wardwell. "Capital is almost being used as a punishment." Bloomberg (8/26) LinkedInFacebookTwitterEmail this Story
  • June: Greek crisis poses problems for CDS market
    If Greece defaults on its debt, European banks with credit default swap obligations could be forced into insolvency, and some political leaders are pushing for a debt rollover as a way to avoid that situation. But an official ruling that a debt rollover is not a credit event that triggers swaps payouts could invalidate the sovereign CDS market, traders say. Financial Times (tiered subscription model) (6/23) LinkedInFacebookTwitterEmail this Story
  • May: Basel Committee might consider changes to liquidity rules
    Stefan Walter, secretary-general of the Basel Committee on Banking Supervision, said the regulator will consider altering Basel III liquidity ratios if banks are able to support their arguments of unintended consequences with analysis and evidence. "We will use the observation period to deal with unintended consequences. We are humble people, and we're willing to make adjustments if necessary," Walter said. "We're not going to relitigate the agreement on the basis of old data -- that's been done to death. We need new analysis, new data -- on the back of which there could be adjustments if we see a problem." magazine (subscription required) (4/28) LinkedInFacebookTwitterEmail this Story
  • April: Analysis suggests Europe's debt crisis could be at a turning point
    Although many issues related to Europe's sovereign-debt crisis remain, news has stopped worsening and in some instances is improving. Whether the situation is improving quickly enough to handle a likely sovereign-debt restructuring remains a key question, according to this Wall Street Journal analysis. However, if European authorities are unable to get debt problems under control, progress made on banking issues could be all for nothing. The Wall Street Journal (4/7) LinkedInFacebookTwitterEmail this Story
  • March: Banks face conflict between Basel III and Solvency II
    Regulatory efforts to prevent a repeat of the global financial crisis are pushing banks in Europe to sell more long-term bonds. Meanwhile, other regulatory efforts are expected to prevent European insurers, the largest buyers of such debt, from purchasing the bonds. Basel III capital and liquidity rules are to take effect in 2019 and could conflict with the Solvency II rules, effective in 2013. "The two bits of regulation are at tension with each other," said Simon Hills of the British Bankers' Association. Bloomberg (3/28) LinkedInFacebookTwitterEmail this Story
  • February: Unintended consequences of Basel III could lock up trade
    The Basel III rules are prompting concerns among bankers, corporations and other market participants. The goal of the updated Basel accords is to increase capital ratios of financial institutions and curtail their leverage to prevent a repeat of the financial crisis. However, some insiders argued that the regulations' one-size-fits-all approach could hinder trade finance and business worldwide. The Wall Street Journal (2/7) LinkedInFacebookTwitterEmail this Story
  • January: CDS are better gauge of eurozone creditworthiness than bonds
    Credit default swaps are proving to be a better way to determine creditworthiness in the euro region than bonds. Investors have become skeptical about factors that are causing spreads to narrow as the European Central Bank continues to purchase bonds. "When yield spreads narrowed because of an intervention from the ECB while credit default swaps blew out, our conclusion is that the worst is far from over," said Stuart Thomson of Ignis Asset Management. "The credit default swaps have become increasingly important." Bloomberg (1/17) LinkedInFacebookTwitterEmail this Story
  Upcoming Events 
  • Where YOU should be in 2012
    • General Meetings

      Spring General Meeting --  Madrid, May 23-24. We are fortunate to have three distinguished speakers, Matt King, Global Head of Credit Products Strategy at Citigroup, and Erik Neilsen, UniCredit’s Global Chief Economist, and Jose-Maria Roldan, Director General of Regulation, Bank of Spain, who will preside over the opening sessions of the IACPM’s upcoming General Meeting. Our Program Committee is developing an interesting and timely agenda which will address recent developments and key issues of current concern to our members which will include:
      • New Initiatives for CPM in the current environment
      • Global Market Updates
      • New Capital, Regulatory and Accounting Issues
      • Applied Case Studies --Transfer Pricing Credit and Funding; Building CDS Infrastructure; Use of ratings in CPM.

      Fall General Meeting -- New York Nov. 15-16. The meeting will take place at The Roosevelt Hotel. Details will follow.

    • Regional Meetings

      Sydney, Australia -- Feb. 22. Westpac will be hosting the next meeting of our Australian members at their offices in Sydney.

      Birmingham, Alabama -- March 26. Regions Bank and the IACPM are hosting an IACPM Roundtable, CPM in the Middle Market. The all-day meeting will take place at the Regions Bank offices in Birmingham.

      Note: Regional Meetings are held periodically in New York and London. Members also meet at regular intervals throughout the year in Canada, France, Germany, Singapore and Japan.

    • Events with IACPM Participation

      South Africa - The IACPM will be participating in Incisivemedia’s conference Risk & Return South Africa in Cape Town Feb. 29 to March 2. The IACPM will present its Master Class on Credit Portfolio Management on March 1.

      New York City - The IACPM in conjunction with RMA’s NY Chapter will present an early evening discussion on April 11 on Liquidity, Funding and CPM: Current Issues and Impliactions.

      National University of Singapore – Risk Management Institution Policy Forum. The IACPM will present its Educational Workshop on July 11 and chair a stream at the annual Risk Management Institute Meeting on July 12.
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