Does the coronavirus change the future of the capital markets?
Right now, it’s hard to see very far in the future. But I think it may bring on some changes—some of them are technical, some are more fundamental. I would say that the financial markets have gone through quite a few crises during the last 12 years, so it’s already rather a tested environment. So I wouldn’t expect it to change totally. But I think there will be some changes, yes.
What kind of new approaches might be needed in the capital markets to cope with this situation?
One thing we have seen over the last years, even as we came out of the crisis in Europe, central banks have continued to provide liquidity to the markets—we were just talking about that coming to an end when this happened and then we saw that we need to have much, much more of it. That continues to be the case.
The fear was that central banks don’t have any more tools in their toolpacks, if a next crisis comes. Now we have seen that governments have done what was asked of them in many cases before. Governments are starting to loosen the purse strings, i.e. starting to say that they will borrow more because they will need to support the economy.
This crisis is different from all the other crises, in the sense that, before, it was the finance area or the government area or one area that was in crisis. Now this is the whole economy, everything—private, public, governments, banks, corporates, whatever—so this is what is different in this crisis. It goes through everything, and we could not do this without governments stepping in. That’s very clear.
One thing that’s talked about in Europe is the mutualisation of debt. Will this happen in this crisis? I don’t know. The jury is still out and you hear different comments every day. I think that in some form or shape it may happen. It doesn’t need to mean that we will get the eurobonds, we may get something else. But I think that mutualisation is even a part of the plan that the EIB is proposing, to a certain extent—to a limited extent. So I think we will see probably a little more of that than we used to see.
In technical terms, we will see a huge amount of issuance coming from the governments, obviously, because they will need to borrow more in order to keep the economy up and running, to keep people’s employment allocations paid, to support corporates, to support banks and just about everybody. That will have a big impact in the future on the taxpayers, I’m afraid, because when governments borrow there’s only one way that it will be paid back one day. That’s going to be on the future generations, I’m afraid.
You mentioned borrowing in the bond markets in order to keep the economy running. In late March, the European Investment Bank issued a €3 billion bond, even though market participants were working from home. How did that work?
It worked actually quite well. But I have to say that if you had told me in January, “Shall we test this?” I would have told you, “You are out of your mind. We will not test this.” But when you have no choice you have to do it.
We had tested on our side that this was feasible. All our bankers, our traders, our syndicate managers were at home. Investors were at home. We did not know that everyone would feel comfortable that they had sufficient information, whether they would have their systems working to the extent they needed. We had different time zones—when we do a transaction like this it involves people from quite a few different time zones from Asia to the Americas.
I would never have attempted it like that, had we not been obliged to. I have to say that when it was done and dusted I heaved quite a deep sigh of relief.
In comparison to equity markets, the capital markets are relatively computerised. You don’t have trading floors for bonds. Is it better set up than stock markets for this sort of situation?
I’m not an expert on stock markets, but I think we are quite well set-up for that. All our trading platforms, our communication platforms all work very well on the internet.
However, when you have all of a firm, be it us or a bank or an investment firm, all working remotely it puts a stress on the bandwidth of those systems, in quite a different manner compared to having a couple of people working outside the office. This was one big test, of course. Home wi-fi is not the same as the work connections. All of this can just come at the crucial moment and then cause disruption.
I would say that we are well-prepared but still nothing was taken for granted.