Editor's letter


Various items of news reflect the disturbed circumstances of both the financial sector and the wider economy as we head into high summer. The cost of shorting financial stocks has risen sharply recently, as the amount of paper available for loan has diminished, with no corresponding decline in the number of would-be short sellers. Even without this compelling indicator, few market participants or observers would believe that we have heard the last bad news from the banks this year.

Expectations are widespread of greater and more visible 'second-round effects' from the strife in the financial system, and these will not be lessened by the KPMG/REC monthly survey of employment agencies. Among other negative revelations, this shows that the number of people placed in permanent jobs is falling at the fastest rate since 2003. Continued problems in the retail sector, with disappointing reports from big names such as Marks & Spencer and John Lewis, provide further evidence of stress in the real economy. Anecdotally we have heard of a greater emphasis at some institutions on single-name credit research due to expectations of a rise in corporate defaults, an eventuality that the investors we speak to agree is likely to become a feature of the market in the second half of the year.

While few can expect a quiet summer, or a comfortable one, the credit market is not bereft of opportunity. Banks are making energetic efforts to target the liquidity available from sovereign wealth funds, and big institutions like BlackRock are ploughing cash into the market. In these pages we also introduce Gatehouse Bank, the UK's newest financial institution, established because its Kuwaiti backer wants a presence in London, even now. We hope for more good news when Credit returns in September.

Matthew Attwood.

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