Message from Colin McKechnie

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Message From Colin McKechnie

Colin McKechnie ,
Global Head,
Financing & Markets Products

The global economic recovery appears to be gaining traction as economic and financial conditions continue to show signs of improvement. However, with the exception of Australia and China, most major central banks maintained their target rates and continued to focus on promoting economic and employment growth while maintaining a watchful eye on the uncertainty surrounding peripheral European sovereign debt. Most major equity markets performed strongly in the fourth quarter with the U.S. equity market having its best December in nearly 20 years. As a result, capital raising activity remained strong leading to 20% gain in share sales for 2010 vs. 2009 levels.

On the Fixed Income Desk, speculation continued to surround the size and scope of the Fed’s return to quantitative easing. It was expected that the Fed would begin its exit strategy from the market, but as the economy remained fragile the Fed determined that further stimulus would be necessary. The effectiveness of the Fed’s program remains a large subject of debate that will be at the forefront in 2011.

Fixed income trading continued to be driven by primary dealers’ emphasis on balance sheet allocation and, as a result, the desk engaged in various short-dated term trades to help maintain liquidity over the year-end turn. In the corporate world, corporate bond balances hovered near year-to-date highs through the first half of the fourth quarter, with October balances reaching their highest point since August 2007. As a result, market participants were focused on cleaning up positions and reducing risk prior to the year-end push.

Borrowing demand for equities centered on capital raising, directional and dividend yield enhancement trades. Securities in the financial, technology, consumer discretionary and industrial sectors experienced the strongest borrowing demand. Equity on-loan balances remained fluid throughout the quarter but fell into December as borrowers pared back positions over year end.

On the Investment Desk, global financial markets remained focused on euro-zone developments as an aid package began to be structured for Ireland. Australian and Canadian banks led the way for an active floating rate market, however overall market conditions warranted continued prudence and our strategy remained focused on maintaining liquidity, preserving capital and enhancing yield where appropriate.

Regulatory reform remained a focal point for markets worldwide. The Committee of European Securities Regulators (CESR) impact on UCITS, France’s new rules on short selling and year end tax changes were at the forefront. We remain committed to evaluating and understanding the implications of these reforms and providing ongoing information and transparency into all things that impact your securities lending program.

As the financial landscape continues to evolve, we look forward to helping your business succeed. Thank you for your business, confidence and trust. If you would like more information, please contact your relationship manager.

To view the next article, Regulatory Corner, please click here.

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