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Stabroek News

Bear worries -Investors nervous, but not Wehby
published: Thursday | March 20, 2008


Senator Don Wehby - File

Senator Don Wehby signalled Tuesday that Jamaica was positioned to weather the fallout at Bear Stearns, saying the country's conduct of business in financial markets overseas was sufficiently diffused among the top investment houses.

"The GOJ has always and will continue to use a wide array of international banks to conduct business on the international capital markets," said Wehby, minister without portfolio in the ministry of finance.

"These include: Citibank, Deutsche Bank, Merrill Lynch and Commerzbank."

Bear Stearns, the number five American investment bank, has served as lead broker on several of the bond placements made by Jamaica, and its name has become associated with the country's eurobonds.

The market was struck last weekend by news of the brokerage's collapse and later purchase by JPMorgan for US$2 per share, reflecting a significant fall from grace. A year ago, the Bear Stearn stock was priced at about US$150.

Brokers here acknowledged this week that investors are nervous about the implications for their portfolios, but said the market had positioned earlier in anticipation of fallouts in the American financial sector .

Market positioning

Rex Shettlewood of Mayberry Investments, for example, points to the softening of GOJ bond prices long before this week as a sign of market positioning.

"Several local institutions with margin accounts with foreign brokers may have received margin calls, a direct result of falling asset prices in that market," said Shettlewood. However, given the adequate supply of US dollar liquidity in the local market, it is unlikely that the demand created by this will have a negative impact on the local currency or "repo" rates."

Wehby expects nothing to change immediately from the Bear Stearns fall, based, he said, on his discussions with a senior manager, who indicated that the investment bank "has an extremely strong franchise in the Caribbean and Latin American region", and expects that position to remain going forward.

No change

"Until the deal with JP Morgan is finalised, they do not expect any of the services that they provide to their clients to be changed in anyway," Wehby told the Financial Gleaner.

Mark Croskery, chief executive officer of Stocks and Securities Limited, appears to agree with Wehby, but said the Bear's financial meltdown has added to market anxiety, and investors a little more wary of taking risks, hence a "shying away" from equity markets and the high level of volatility in prices in the interim.

"On a positive note though, we think that concerns coming from US brokers (competitors to Bear Stearns) or local 'talk' of possible margin calls (speculation) on fixed income securities in the Emerging Markets and more specifically Jamaican bonds," said Croskery, "is not as applicable now as it would have been years ago, as in our minds, Bear Stearns is no longer the size player or the dominant player in the GOJ eurobond market."

debt issues

In the past few years, Bear Stearns has not been as closely associated with Jamaica's road shows and debt issues, said Croskery.

He said however that the risk averseness that has set in the market could lead to investor reluctance to participate in new issues, making it more expensive for countries like Jamaica to raise funds.

business@gleanerjm.com

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