The COVID Diaries: DCM originator 2

The following interview is with an Australian-based debt capital markets originator. It was conducted on 23 March 2020.

Are you working from home? If so, how challenging has the change been and, if not, how likely do you think it is that you will be working from home in the coming weeks?

I certainly am working from home. And the frequency of my bank’s work-from-home regime has progressively stepped up through March as the severity of this crisis has grown. Long before the reality of the virus’ spread outside China hit home, our bank was limiting external client meetings to only five people and avoiding nonessential in-person meetings. I even awkwardly stepped back from attending business lunches with clients at the last minute when it became apparent numbers would exceed five.

A few weeks back, we moved to an A and B team regime, which had my colleagues in the office on different days. Now, no more than one team member can be in the office at a time. Of course, travel went out the window ages ago.

With the situation becoming only more protracted, I am settling in at my home desk for autumn.

How close do you think the market will get to business as usual if we are in a period of social distancing for multiple months, including working from home and little or no face-to-face interaction?

It’s hard to imagine things could go back to normal quickly, even if a vaccine were to magically appear. Financial markets have taken an unprecedented thumping with fears of economic recession growing. The financial crisis showed that primary bond markets were very gun shy on recovery, and that was when we could discuss corporate bond ideas with investors face-to-face without the need for mandate announcements.

I believe markets will return eventually. History has shown that bond markets seem to follow a certain pattern of recovery, initially re-establishing themselves via highly rated defensive issuance. This sets a new credit spread benchmark for others down the rating stack to use as a measuring stick around pricing.

I’m a firm believer that necessity is the mother of invention, so I wouldn’t be surprised if something good comes out of changed working arrangements and greater use of remote access.

It feels to me like fixed income has lagged in terms of technological advancement in recent years, notably around investor engagement and deal execution approaches – the latter of which is notably slower than it is offshore. While electronic trading platforms have had some impact in streamlining this space, it would be good to see efficiencies arise out of changed working practices that truncate execution windows.

"There are so many unanswered questions about the potential depth of this crisis, and it seems as good a time as any to be cautious. I think this is exactly how markets and treasurers will behave. We have already seen significant US corporates pay an average 50-basis-point new-issue concession, about 12 times the 2019 average."

What other changes are you making in your personal and professional life?

So far, I would say I have found it a challenge to maintain the same momentum and productivity that you get in an office while working from home. This is part of adjusting to a new work environment and many people I know have successfully adapted.

I think having flexibility is great when you have most of your team in an office, but when you are all out it requires strong discipline not be distracted. Equally, having flexibility around when and how you work is pretty special and seeing family a bit more than normal has various benefits whereas success often comes at the expense of family time. Nevertheless, keeping in touch with others, including clients, remains a challenge.

What are you most worried about in this period, personally or professionally – and how worried are you in general?

While I think there is a risk in being complacent, I am feeling okay that this uncertainty will pass in time, and that the important role of banks as liquidity providers will be better appreciated. Banks generally are far better capitalised than they were before the financial crisis, and corporate balance sheets in Australia are less leveraged. These businesses seem better equipped to handle a downturn.

More leveraged US corporates may fare less favourably over this period, and this remains something to watch in case it triggers further financial stress. I worry about the ripple effects of economic recession on employment and asset prices, and how this will undermine consumer confidence and career opportunities for people of all ages.

There are so many unanswered questions about the potential depth of this crisis, and it seems as good a time as any to be cautious. I think this is exactly how markets and treasurers will behave. We have already seen significant US corporates pay an average 50-basis-point new-issue concession, about 12 times the 2019 average.

Being an eternal optimist, though, whether this ultimately spurs on more M&A or ultimately delays issuance until the second half, I’m sure markets will be back and when they are supply will be swift.

What is the latest article you have read in relation to COVID-19 and what did you like/not like about it? Can you provide a link?

My favourite article comes from a microbiologist. It’s titled Social Distancing During the 1918 Influenza Pandemic and Lessons for Coronavirus Disease 2019 (COVID-19). It discusses how two American cities dealt with the 1918 Spanish flu very differently, and how St Louis successfully practised social distancing and flattened the curve while Philadelphia did not and paid a high price.

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