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The announcement of Fed tapering has boosted financial market volatility and high-yield spreads. This is an important development for private equity because debt markets are a major driver. However, historical patterns suggest that this spike may be a temporary phenomenon during which markets are weaned off the liquidity glut.
Over the medium term, monetary normalisation should be associated with stronger risk assets and better prospects for private equity. This is not because private equiteers would cheer a cut in liquidity supply. Instead they would cheer the underlying economic improvement that would allow cutting liquidity in the first place.
The recent Fed announcement may have marked the beginning of the end of monetary expansion in the US. This note revisits previous research to distil some implications for high-yield corporate bonds. It argues that monetary normalisation should be associated with a moderating effect on issuance volumes, but also with a more investment-oriented usage of the money raised.
This study reviews how Japanese banks have responded to the adverse macroeconomic environment during the past ten to twenty years. The experience of Japanese banks provides some valuable insights into the effect of a prolonged phase of low interest rates on bank balance sheets and profitability. Banks have adapted both the cost and income drivers of their business. Profitability and efficiency gains have been limited though. While Japanese banks have reduced their bad loan problem, they have also become increasingly exposed to their home sovereign.
With banks searching for sources of income and growth and the relationship of trust with their customers being redefined, pricing is a key issue in retail banking. Price-setting calculations for retail financial products can be quite complex and one crucial factor for success is the capacity to identify and collate all necessary information to take sound decisions on this basis. While the range of analytical options has grown considerably in recent years, the challenge banks are facing is to use them intelligently to develop client-oriented offers. To complement their pricing, banks also need convincing strategies to communicate the prices and value-propositions of their products.
Substituting bank lending has been a recurring theme in connection with corporate bond issuance during the last few years and explains part of the recent peaks. At first sight, corporate bond issuance in EMU’s periphery has kept up with EMU’s core countries. However, below the surface lies a strikingly different pattern that suggests that companies in the periphery receive much less support from bond markets.
For many months, a heated debate has raged across a variety of sectors on the question of which web-based payment technologies people are going to use in future when they go shopping. Not only players from the financial sector are intensively searching for an answer.
High investor demand is fuelling corporate bond issuance in the EU. Deleveraging in some countries and the fact that some banks are paying roughly the same or even higher rates for their refinancing than their customers no doubt has pushed corporate debt markets. But the main driver for the high issuance volumes seems to be investors’ search for yield in a low interest rate environment. As sovereign bonds are offering historically low yields, corporate bonds have turned into a significant investment alternative in the present market conditions. However, in an era of Knightian uncertainty and high liquidity, strong growth in corporate bond market calls for attention to potential overheating.
The rise of mobile and online payments opens up new opportunities, but of course also presents new risks for financial services providers. A lot of attention is currently paid to the (walled garden) strategies of new competitors such as Google, Apple or PayPal. They are increasingly putting out their feelers in segments outside of their own territory, e.g. the market for (mobile) payments. Those financial services providers who do not modernise their upstream and downstream value chains or subject them to the transformation process required for the digital network architecture could suffer painful losses over the medium term. Our paper draws four scenarios on how the market share of banks might develop in about three to five years’ time, with a particular focus on the European market.