With Asia’s growth potential…who needs CDO-squareds?
Chat among markets in the U.S. and Europe is that if the authorities clamp down on banks too hard, they’ll simplyÂ up sticks and move more of their business over to Asia.
This conjures up an imageÂ that markets in the East 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?
âGrowth trumps financial engineering, always,â said Lynch.
âPeople donât 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,â he said.
So itâs not the regulation worries that generally keep him awake at night, but the fear that a sudden spark could upset those fundamentals.
âThere 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 youâre seeing now in the Middle East and North Africa are just unprecedented – in my 25 years in the industry youâve never seen the like of it before,â.