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16 | ifr special report | April 2008 NON-CORE BOND MARKETS ROUNDTABLE

is a fairy tale: reality looks different. In good times you have to fight for the business against broader competition and in bad times you fight for survival in a difficult environment. This is just the name of the game: that is what we are paid for, and that is what we do very well. As to whether investors or issuers have a conscience, it is generally much better with issuers. The investor base is focusing on a new investment, and whoever is going to give the best price for what they want is going to win the bet in good times.

Isabelle Laurent: I think most issuers are fairly responsible in trying to balance out the ability to allow other people into a market with trying to look at the rationale for why they are there and whether or not they have the infrastruc- ture. I think issuers have a responsibility to try to find that out, particularly ones that are not necessarily so liquid and therefore would not be able to support their debt if the investment bank were suddenly to step away, which would leave them with reputational risk. However, you do not want to block out new entrants. I remember when we started to do

many of these emerging currencies, we were doing them with TD Securities in the 1990s. TD had no historic position in those markets: they were the newcomer on the block. So we went, and we saw, and we understood the rationale of what they were trying to do and the business model they had. Now, they could have pulled out, but

they did not. They had decided that that was what they were going to do, and now they are a significant player: nobody is questioning their role in those markets. RBC similarly came from a background with Hambros and other retail investor bases, so there was a long history of dealing in many of these kinds of exotic markets. So, there was a rationale. Deutsche has been there right from the start and has many local presences.

Sometimes we believe that

clients really come back and reward you for liquidity given in bad times, but this is a fairy tale: reality looks different.

” But many people pulled out during

some of the crises we have seen, and they are not always the ones that you would predict. So, I think issuers try to be fair-minded and try to allow markets to develop, but, at the same time, they need to balance out exactly what the rationale is, and I think most do that successfully.

IFR: So, it appears that issuers take this into account but investors don’t. Is that a real worry?

Holger Kron: Once you figure out what you want to do, as an investor, you generally tend to go for the cheapest price in good times because you probably do not really think about Plan B. Plan B is something you don’t really expect when you invest in something and if you really expect it to happen, you should think about whether you should do this investment in the first place. So, in that respect, I think it is a very natural thing that this happens. Obviously, I would wish it to be different, but this is just the way it is.

Isabelle Laurent: Maybe we will see things change going forward. We have had other crises and people have pulled out, but it is often the sort of people who are not in the core, they are on the side, and they were caught in some particular crisis that was very localised. Right now, what we are seeing is a real meltdown in so many different markets that people are focusing far more on these issues about who has liquidity and credit, and going back to Plan A. It is not something that is affecting the boys who are at the other end of the dealing room: it is affecting everybody, and, to that extent, investors themselves are focusing on these exact issues, whether they are in emerging markets or mainstream markets. So, maybe it will harder for people to forget, although I don’t know if that is being too optimistic.

Holger Kron: Maybe you are right, but the reality of the past proved different.

Isabelle Laurent: Yes, but I think a lot of people were replaced very quickly, so a lot of them did not have the institutional memory resulting from difficult experiences. People went, people came, people went. But right now you would have to get rid of everybody that is involved in the markets to lose the memory of what this has meant in terms of what liquidity is, where demand is and who is making prices. I think this is very fundamental.

Horst Seissinger: If you look at the bigger picture, that is definitely true. What we saw in the past was cycles in the emerging markets and in the consequent interest of investment banks. Now it is obvious that these markets are in regions of growth where investment banks try to maintain a sustainable interest. Therefore, I think we will not return to these cycles, and we will have more focus from a broader community of banks that are active in these currencies.

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