Agent Lending Newsletter - Issue 1, 2014
2013 is now behind us and as anticipated it proved to be a challenging year in many ways for the securities lending industry. The overall improving economy, positive equity markets, low rates and continued excessive liquidity coupled with capital and balance sheet concerns which dominated borrower behavior, continued to dampen demand, balances and spreads. As we have reported throughout 2013 we have remained true to our strategy and from that perspective we can report many positives throughout the year including:
- strong appetite from clients to seek additional opportunities to grow revenues;
- selectively growing our client base focusing on clients who are complementary to our overall asset pool;
- continued collateral expansion to match changing borrower requirements;
- enhancements to our client reporting including the release of our latest dashboard to help clients gain quick access to metrics relating to their program activity.
As we move into 2014 we continue to closely monitor regulatory developments especially ESMA guidelines for UCITs, EU Financial Transaction Tax, FSB Policy Framework for Securities Lending and Repo and the impact of Basel III on borrowers and agents in respect of capital. As you will read in this newsletter, we believe
- moderate growth in equities but with greater volatility relative to 2013. A pick up in directional and special activities, increased capital raising, but volatility in yield enhancement business.
- continued low rates, potential for increased tapering by the Fed, but lower margin, capital intensive trades harder to execute
- issuer levels remaining range bound and a downward bias in the US, with issuers continuing to favor floating rate products or alternative structures
- positive opportunities for clients with a broad range of acceptable collateral, emerging markets and clients willing to consider term structures (evergreen or bullet).
We look forward to seeing clients in London on February 27 for J.P. Morgan’s Agent Lending, Clearing and Collateral Management conference where industry experts will discuss and debate a broad range of topics including financing and capital, counterparty risk, transparency and how post trade considerations are impacting pre-trade decisions.
We would like to thank you for your continued business and support and wish you a successful and profitable 2014.