Let’s set the scene. What has this year been like for lenders and lending opportunities?
This year should be very good in terms of revenues for our clients.
Market moves have meant more opportunities. Post-Covid volatility, the normalisation of monetary policies, uncertainty regarding the war in the Ukraine, and interest rate hikes to combat high inflation – these are some of the macroeconomic and geopolitical factors that have given rise to these opportunities.
As an example, July and August, which are traditionally quiet months for the securities lending business, have been the best months in terms of revenues so far according to S&P Global, so 2022 should be an exceptional year in many respects.
We are seeing these lending opportunities across most asset classes, often for varying reasons. There has been a comeback of special situations equity linked to extra liquidity injected by central banks up until July but also on the credit side largely due to significant directional shorts. There has been high demand for corporate bonds, which has caused levels to skyrocket, leading the asset class to become best performer this year in terms of revenue.
As normalisation of monetary policies takes place across the globe, we believe spreads between core and peripheral govies, and HQLA vs non-HQLA should widen. Holders of HQLA should then enjoy increased revenues on this asset class during Q4 of 2022.
This year, we have also seen certain clients that were more hesitant about securities lending during Covid return to their programmes. Some had to manage their business using an alternate model, such as relying on remote working and were not comfortable with adding the responsibility of monitoring the lending activity of a provider. Others were simply uncertain about the potential of big market moves during the pandemic and the risk of not being able to recall their securities in time if there were a sell-off. Now that the pandemic is largely behind us, they are all returning to the lending programmes.
What are two or three lessons that you have learned this year?
I would say that resilience is the first lesson. What I have learned, and I think what all of us in the industry have, is that we managed to demonstrate to [...]