SPA Conference: Traders see investors overcoming credit fears

By Emma Trincal

New York, March 25 - "The view from the trading floor" panel at the Structured Products Association's seventh annual conference was an opportunity for senior structurers to focus on best practices and investors' sentiment in a post-credit crisis market environment.

Speakers debated mostly about credit risk and how its perception impacted sales and investors' confidence from a low at the end of 2008 and the beginning of 2009 to a higher confidence level over the past few months.

All panelists agreed that investors were paralyzed by the fear of credit risk last year. But the discussion was about how they also became more acquainted with the notion of credit risk, in some cases understanding that more risk also means better pricing and terms.

Comfort zone

"Structured products have suffered since the end of 2008 from the perception of credit risk but over the past year, investors have progressively become more comfortable with credit risk," said Philippe Comer, managing director in commodity investor structuring at Barclays Capital.

"Clients are more and more comfortable with products. They understand commodity-linked better. They understand index-linked products. It's been actually a pleasant surprise to see investors reaching this comfort zone," he said.

Distributors' role

Panelists said that the role of distributors was central for proper disclosure and explanation of what credit risk presents for investors.

In this regard, credit risk awareness varies from a distribution channel type to another, sometimes as a function of the size of the operator, said Mike Clark, managing director at Credit Suisse.

"The larger distribution channels have done fairly well in training their salesforce and developing processes to evaluate credit risk," said Clark.

"At the lower end of the distribution channel though, some have become less sensitive to issuer's credit. In those cases, I think more due diligence and education should be taking place."

Good fear

Overall, speakers tended to agree that credit risk fears culminating after the Lehman Brothers demise ultimately had a positive impact as they pushed to the forefront the need for sellsiders to improve due diligence and better train their brokers.

Liquidity

Panelists also talked about the need to ameliorate liquidity in the secondary market.

"Our ability to educate and also to provide an articulate and tradable secondary market is key to developing liquidity in this market," said Comer.

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