Summit Notebook

Exclusive outtakes from industry leaders

With Asia’s growth potential…who needs CDO-squareds?

By Rachel Armstrong
February 28, 2011

Chat among markets in the U.S. and Europe is that if the authorities clamp down on banks too hard, they’ll simply up sticks and move more of their business over to Asia.

This conjures up an image that markets in the Ealynch3.jpgst are set to become a haven for some of the now frowned-upon practices that were seen in the build-up to the financial crisis such as slicing, dicing, and re-slicing of subprime debt.

But, as Nomrua’s CEO for Asia-Pacific and the Middle East Philip Lynch told the Future Face of Finance summit in Hong Kong, that’d be wrong.
For one thing, subprime debt isn’t generally tolerated by authorities in this part of the world.
But over and above this is the question of why on earth would banks waste their time going back into those complex activities when the fundamental economics mean you can make a lot of money through plain vanilla banking and brokerage services?
“Growth trumps financial engineering, always,” said Lynch.
“People don’t have to do the nth derivative on some sliced product because if you actually finance growth in a reasonable and intelligent way, you can actually make very very good returns,” he said.
So it’s not the regulation worries that generally keep him awake at night, but the fear that a sudden spark could upset those fundamentals.
“There are a lot of imbalances in the system that make me nervous and I think the speed at which fault-lines are exposed, be they economic or social-political as you’re seeing now in the Middle East and North Africa are just unprecedented – in my 25 years in the industry you’ve never seen the like of it before,”.

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