Last Updated: 16 January 2023
Before the recapitalisation, Paul, you said that the “outlook is bleak, maybe terminal, for ETNs and large parts of the structured product industry.” Do you still think that’s the case with the government standing behind the various banks?
More generally, should it be the case?
What changes do you think we need to see in the ETF market to ensure that it delivers on its promises to investors? We’ve already seen ETF Securities move to fully collateralize its exchange-traded commodities, and while some might question the strength of AA-rated securities as collateral,you have to agree that it’s a big step in the right direction.
What other changes do you expect in the ETF market? Are investors smart enough to demand increased transparency around share lending practices? Will the growth of swaps-based ETFs continue, or will investors prefer in specie funds? Will the massive infrastructure that exists to market structured products really disappear, and if so, will ETFs pick up the slack?
Fallout From The Buyout
On another note, I was interested to see how the markets would respond to the effort to recapitalise the banks. Without question, the movesent stock markets soaring. The FTSE closed up 8%, the CAC 40 jumped 11%, and in the U.S., the Dow had its biggest up day ever, rising 11%.
But the bank stocks, while they rallied, were relatively anemic.The Lyxor DJ 600 Banks ETF managed just a 5.97% rise, and the targets of the UK bailout (RBS, Lloyds TSB and HBOS) actually closed down on the day.
On the one hand, the massive transfer of wealth from taxpayers to the financial sector can only be good for the banks, tightening the Eurobor-OIS spread and restoring some confidence in the system. But it appears that investors are looking past the feel-good bailout and focusing on massive dilution and the new government role in the banking sector. In other words, bailing out the banks may be good for the broader economy, but whether it will be good for the banks remains to be seen.