Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The survey results suggest that CFA InstituteÆs members are encouraged by the strong and varied government actions to shore up the industry and for financial firms to open their books, but they are also looking for financial institutions to focus on correcting the mistakes that led to the crisis in the first place.
ôThe recent G7 and global treasurer meetings are a step in the right direction,ö says Jeff Diermeier, US-based president and CEO of CFA Institute. ôHowever, investors want banks and other public companies to take some responsibility for their excessive risk taking and their focus on short-term goals that greatly contributed to this crisis.ö
Diermeier notes that it is no surprise that banks are still not comfortable lending to one another. ôNo one is sure what surprises there are on a firmÆs balance sheets. That needs to be addressed promptly and the actions being taken are designed to do just that,ö Diermeier says.
Anonymous comments from the survey respondents include:
ôIt is essential that over the next quarters we have a process of "cleaning" of banksÆ and other investorsÆ balance sheets in a gradual way.ö
ôFull transparency and disclosure by all financial institutions, including hedge funds, private equity, etcetera, with an end to secret strategies as a cloak to hide positions is essential to restoring confidence.ö
ôPart of what is contributing to volatility is the uncertainty of what government will or will not do. Certainty in this arena would help settle prices, and even if that is lower it would make a base for future growth.ö
ôLeft out of the options in this survey is the absolute need to re-regulate the industry. If change to the regulatory framework is not made, then we will be operating in a framework in the future no different than the current one.ö
The survey was conducted on October 12 to 14. There were 5,148 respondents. Around 75% of the respondents said that governments worldwide should take their lead from the UK government, which was the first to announce plans to strengthen the capital base of domestic banks by investing directly in the equity of those banks.
Around 83% said confidence among financial institutions will return and they will likely begin trading with each other again if governments were to guarantee all short-term debts of solvent financial institutions.
When asked about the extent by which government measures other than direct investment in banks and guaranteeing of bank debts would help to unfreeze the credit markets, only 16% completely agreed with central banks taking steps to eliminate insolvent institutions and to foster recapitalisation of institutions deemed solvent; and only 25% completely agreed that full disclosure of bank assets, asset valuations, and valuation assumptions to the market would be beneficial.
Slightly more than half, or 51%, of the respondents believe that the financial crisis cannot be resolved without government intervention.
When asked about the factors that exacerbated the crisis, most fingers were pointed to the unwillingness of commercial banks to lend to each other.
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