Creditflux Newsletter

Looking back through the Creditflux archive to the first edition in September 2001, Wolseley is struck by how, despite enormous change over the last 10 years, the issues and challenges that the credit market faces remain constant.

Steven Stonberg was swimming against the tide then as always with his move from Deutsche Bank to JP Morgan. Creditflux reports various huge, innovative, complex deals from amongst others, Abbey National and Enron (remember them and how they were going to shake up the credit market with CDS trading on enron.com… Markus Fiala where are you now?) Then, as now, Swiss Re was exiting the structured credit business, while, on the regulatory front, Basel Committee plans to introduce a “W factor” to discourage CDS use were meeting stiff resistance.

Even market conditions bear an uncanny resemblance, as the post dotcom bust in 2001 is replicated by the sovereign debt bust of 2011.

We shouldn’t be surprised to find these stories repeating themselves. Contrary to the delusional rantings of a former British prime minister, the business cycle is not dead, and boom and bust are not over. We operate in a cyclical world and a cyclical market in which boom follows bust, and events, characters and magazine stories come to repeat themselves.

But much has changed in the 10 years that Creditflux has been covering our market. For a start, the underlying market is much, much bigger than it was a decade ago. Our market is much more liquid (which is why occasional and recurrent periods of illiquidity appear so dramatic), with more credits trading and a broader range of products.

When Wolseley traded his first Eurobond back in the days of Siegmund Warburg and Allen Wheat (admittedly a little more than 10 years ago), the credit market was like the pharaoh’s, with years of feast followed by seven years of famine. In good times, bonds were issued at par, and traded a few times before being tucked away into portfolios until maturity. In bad times, no bonds were issued and all secondary prices for bonds disappeared. Europe (as opposed to the US and the UK), didn’t even have a credit market worthy of the name. There was no transparency, and access to credit was limited to a privileged few who enjoyed a strong relationship with an insular oligopoly.

Back in September 2001, Creditflux also recorded the difficulties of finding asset managers who had both strong credit skills and fluent knowledge of credit derivatives. Today, participants in our market would not expect to be taken seriously without thorough knowledge of both.

Those of us who have been involved in the market for the past 10 years know that we have taken some false turns and made our share of mistakes: CDO squareds, toggle features and SIVs come to mind. But Wolseley hopes that regular readers will forgive this columnist for restating the firmly held belief that in credit markets as in life, trying and failing is the only way to make progress.

As long as we collectively learn from the mistakes of the last 10 years, we will be able to make progress. That way, one of the world’s most wonderful markets will be as important and vital as it has been for the past 10 years, and it will still be generating stories of boom and bust, bankruptcy, failure, fraud, dud products and regulatory attempts to end the credit cycle. And all of those tales will still be chronicled in the pages and pixels of our journal of record, Creditflux.

Wolseley is a leading practitioner in the credit market. Feedback is welcome at wolseley@creditflux.com