Editor's letter
Looking back, of course, we all knew that Lehman Brothers would go bankrupt. Didn't we? Well, the smart minority had it that Lehman might be allowed to fall, but the overwhelming majority of opinion was, after so many government-sponsored bailouts, that the 158-year old bank was too big, or at least too important, to cast off.
Whether you attribute the loss to the greed of Lehman boss Dick Fuld, or you think that banks should be subject to market forces and allowed to go to the wall, it doesn't really matter.
What we are left with is confusion - no one knows what will happen, other than they will probably lose most of their investments. Without wanting to delve deeper into history than entirely necessary, what we have here is not unique. Banks build up the billions in the good times, but must be feasting on kryptonite to believe they will not go bankrupt when times are tough.
We are also faced with deals that need to be either unwound, novated or resolved, for the good of those wanting a return of their damaged goods. How does this work? No one knows, or so it would appear. While we clamour for some degree of certainty, markets are being made by other product issuers, generally in small sizes, and mostly on the quiet.
Deals done by Lehman as an issuer across the world are different, so it is impossible to generalise. But what we can say is, while regulators and distributors work out how and if they can help the 'mom and pop' investors, the word 'guarantee' may well have to be removed from product documentation.
On this page of the October 2007 issue of Structured Products, I talked about how little time was really spent on assessing issuer credit. Unfortunately, now we know how prophetic those words were. And in the US report that we included in the July/August 2008 issue, a Q&A on counterparty risk noted that banks were perceived as 'too large and interconnected to fail'. That statement seems rather poignant now.
Richard Jory, richard.jory@incisivemedia.com, +44 (0)20 7484 9802.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Structured products
A guide to home equity investments: the untapped real estate asset class
This report covers the investment opportunity in untapped home equity and the growth of HEIs, and outlines why the current macroeconomic environment presents a unique inflection point for credit-oriented investors to invest in HEIs
Podcast: Claudio Albanese on how bad models survive
Darwin’s theory of natural selection could help quants detect flawed models and strategies
Range accruals under spotlight as Taiwan prepares for FRTB
Taiwanese banks review viability of products offering options on long-dated rates
Structured products gain favour among Chinese enterprises
The Chinese government’s flagship national strategy for the advancement of regional connectivity – the Belt and Road Initiative – continues to encourage the outward expansion of Chinese state-owned enterprises (SOEs). Here, Guotai Junan International…
Structured notes – Transforming risk into opportunities
Global markets have experienced a period of extreme volatility in response to acute concerns over the economic impact of the Covid‑19 pandemic. Numerix explores what this means for traders, issuers, risk managers and investors as the structured products…
Structured products – Transforming risk into opportunities
The structured product market is one of the most dynamic and complex of all, offering a multitude of benefits to investors. But increased regulation, intense competition and heightened volatility have become the new normal in financial markets, creating…
Increased adoption and innovation are driving the structured products market
To help better understand the challenges and opportunities a range of firms face when operating in this business, the current trends and future of structured products, and how the digital evolution is impacting the market, Numerix’s Ilja Faerman, senior…
Structured products – The ART of risk transfer
Exploring the risk thrown up by autocallables has created a new family of structured products, offering diversification to investors while allowing their manufacturers room to extend their portfolios, writes Manvir Nijhar, co-head of equities and equity…