In, Out, Shake it All About!.... A Flaccid Brexit?
Blain’s Morning Porridge – Jan 17th 2017
“In! Out! In! Out! Shake it all about…”
We learn today Theresa May’s cunning plan to Hokey Cokey the UK’s way out of Europe. I’m reliably informed it will be based around a “Clean Brexit” as opposed to the Hard, Soft or Flaccid Brexits the markets so fear. The UK will exit the Single Market, Customs Union and European Justice… and it will fascinating to see how pragmatically Europe responds and figures out how to deal with the potential loss of 20% plus of its markets and a major source of funding. Don’t underestimate the potential importance of how the rest of the planet will see the diminished significance of a Europe sans UK…
Back on planet Earth, my Macro Economist, Martin Malone and I were having a mild wind each other up session as we debated the relevance or otherwise of the IMF’s improving economic projections. Martin reckons a mix of “P&P”: politics and policy underlie the latest “Solid” 3.75% advanced and 9% EM economic growth forecasts the agency has now come up with.
I wondered, idly, if this was the same IMF that confidently predicted the end of British Economic history on Brexit, the collapse of the industrial west, and has repeatedly Got It Wrong for the last decade or so?
Apparently.
Martin reckons the likely new policy mix in the US: easy fiscal, tighter monetary, strong dollar, higher oil and inflation on the back of policy stimulus and making investment look attractive will change the work. On the back of a stronger US, the global economy will be dragged higher.
It will be interesting to see how hopes of Trump led recovery pan out. The Liberal Media hate him. Last night on the box was like the 10 minute Hate as Channel 4 attached Trump for his links to Fossil Energy and the BBC then castigated him as a Russian Stooge. Fascinating stuff.. but Mrs Blain was gently snoring half-way through.. Throw enough mud at an already muddy man and it will stick.
Back in market land, very interesting interview in the FT with Larry Fink of Blackrock regarding European Capital Market: “Fink Calls for Europe to Bolster its Capital Markets”.
This is stuff close to my own ambitions.. European finance remains too closely based around banks – who still front the bulk of corporate lending. Only now are we seeing the emergence of new lending conduits: direct lending by insurance and pension funds, and the rise of the “Alternative Asset” markets.
Many of the deals we’ve been doing have been in this space – providing institutional investors with opportunities to achieve real returns from property, infrastructure, transport and renewable assets – have proved very successful. We’ve also learnt from failure – new asset classes tend to scare more conservative investors, and some borrowers have proved very unrealistic. We’ve learnt from every deal. Many of these structures use subordination and asset backed lending to achieve returns that far outstrip the returns available from markets.
One of the points Fink makes to the FT will be familiar to bankers – just like egregious capital rules restrain banks, Solvency 2 rules for insurers actually make it more difficult and less economic for them to lend. In the wake of the 2008 financial crisis reactive capital rules forced banks to retroactively build up and retain capital rather than lend to back recovery. It was very clear at the time as property developers, small businesses and home owners found banks unwilling/unable to lend.
Fink’s final comment in the article is sage: “Liquidity can be increased by responsibly reviving securitisation markets, which will help move loans off bank balance sheets and free up capital for lending.”
It’s happening. Quietly.. below the radar screen.
When I came to Mint nearly 5 years ago, I reckon less than 20 accounts across the London Market were willing to consider unrated, potentially illiquid private placements or providing warehousing lines where the banks had retreated. The number of players in the space is ballooning. More and more institutions are willing to think out of strict “rule” boxes to improve returns.
It’s an exciting space – and if you want a look at what we’re doing.. let me know.
Back to the markets..
Bill Blain
Head of Capital Markets / Alternative Assets
MINT Partners Division of BGC Brokers L.P 20th Floor 1 Churchill place, Canary Wharf London E14 5RD Tel: +44 (0) 20 7786 3877