What goes around, comes around

‘Challenging times’ was the main headline of our cover feature in last year’s end-of-the-year double issue, but for many in structured trade and commodity finance, the challenge of 2008 was simply finding the time to do all the deals that the market was crying out for thanks to the credit crunch – until the third quarter when Lehman Brothers collapsed.

While a bank, in principle, ought to be allowed to go the wall like any other business if it fails as ignominiously as Lehman, it quickly became clear that allowing even this recklessly run investment bank to go bust caused near catastrophe in an otherwise fragile market when it filed for Chapter 11 bankruptcy protection in September. Banks stopped lending, confidence evaporated, deals went unfinanced and trade consequently nose-dived.

Hopefully, the financial system will recover its poise quickly enough and trade finance can be the engine of economic recovery. But in the longer term, lessons will have to be learned and implemented rigorously in the banking systems of Europe and the US. Regulators could do a lot worse than examine the systems in place in some of the countries that did not fall foul of the credit crunch, such as Spain’s or many of the countries in Asia, which just ten years ago were suffering under the weight of their own credit crunch.

The immediate future, however, will certainly be challenging. With the October bailouts of all but a handful of US and European banks, their ability to help fuel growth at a time of recession will not be as great as it should be – they still have much damage self-inflicted with toxic investments to repair (not to mention ‘toxic managers’, to borrow a phrase from forfaiter Sal Chiappinelli, to deal with too).

However, the first quarter will indicate just how deep the recession will be and the countries and regions it can be expected to hit the hardest. Trade and the global economy will then be able to grow on a firmer foundation – one that encourages banks’ senior management to remember that banking is supposed to be primarily about managing risk, not growth at any cost.

Because we now know just how high that cost can be.

Graeme Burton
Managing editor

Features

Sponsored feature Free
The outsourcing of risk management can help banks to maintain and strengthen client relationships – even in a time of crisis. Sponsored feature by Lamon Rutten.

Feature: Structured trade finance Free
When a borrower under a strade finance transaction hits the buffers, the key is to stay cool, says Denton Wilde Sapte’s Geoffrey Wynne.

Feature: Spain and Latin America This article is for subscribers only
Spanish banks looked to South America when they wanted to expand overseas, but they have been careful about where they have invested their funds, writes Ivan Castano.

Feature: Global financial crisis Free
The ‘great deleveraging’ has begun. How will it affect trade and trade finance in 2009? By Graeme Burton.

Feature: Francophone Africa This article is for subscribers only
Soon, there will be little left of France’s special relationship with its former colonies in Africa, except nostalgia and sentiment, reports Ismaila Dieng.

Feature: Open account This article is for subscribers only
How can local banks survive the move to open account? The answer, says Dominc Broom, lies in partnerships between them and the global giants.

Review of the Year Free
In the last quarter of the year, trade activity tailed off dramatically. Is this a temporary hiatus caused by the sharp fall in commodity prices and the collapse of Lehman Brothers or indicative of more entrenched challenges? TFR has talked to six top trade-finance professionals to ask their opinions.

Regulars

Omni commentary This article is for subscribers only
Credit crisis: Increased risk of sovereign defaults in the emerging markets – part two

Profile: Norbert Fritsch This article is for subscribers only
If Norbert Fritsch’s family had not escaped from East Berlin in 1960 – just ten months before the Wall went up – he might have discovered forfaiting as a client, rather than a banker.

News analysis: Shipping piracy This article is for subscribers only
Piracy is becoming a growing problem in one of the busiest shipping lanes in the world – despite the presence of 16 navies in the region. By Graeme Burton.

Market view: US trade policy Free
Jon E. Huenemann of Miller & Chevalier Chartered examines the likely direction of US trade policy under President-elect Barack Obama.