The internet is finally coming to the loan market. Since the beginning of the year there has been a flurry of activity in this space, but with most of it being focused on the secondary market.
The main players appear to be as follows:
- Ereorg – The exchange was originally believed to have been started by a lawyer from Sherman and Sterling, with funding thought to have come from Warburg Pincus. The intention was to focus on distressed debt trading. Apparently the original pitch to banks did not go down too well as banks were not offered any equity participation. It has an offshoot in Japan in the form of a joint venture with Mitsubishi Corporation.
- Digital Debt/Loan Ex – Sponsored by a Bank of America alumnus Michael Rushmore, it is in the process of linking up with Credit Ex, a credit derivative Exchange started by some ex-Deutsche bank credit derivative traders with funding from a large group of major financial institutions, including Deutsche Bank, BOA, CSFB, etc.
- Debt Domain – Started by Sean Tai, a former member of the Standard Chartered syndication team in Singapore and joined by a number of other bankers in the region. Unconfirmed rumour has it that seed funding was provided by a small Asian based boutique investment bank.
- Credit Trade – Similar to Credit Ex – an exchange in the credit derivative area – with funding from a number of financial institutions including Chase. Now venturing into the secondary market.
The question of course is whether there is sufficient volume, earnings, or activity in the secondary market for all of these exchanges to make money. In 1999, based on published statistics, it appeared that the total volume of loans traded in the secondary market for North America was approximately $65 billion. North America accounts for about 75% of the total volume. This is against a total primary market volume of about $1.8 trillion.
Having said that, the above numbers do not include one-off sales by institutions which attempt to re-configure their portfolio by selling assets on a negotiated basis. If you include these, the total global volume could be in the $200 billion region. Of course banks are now increasingly using credit derivatives to restructure their portfolio rather than selling them outright.
Will all of these exchanges (and I assume there will be more) find their place in the sun? Keep watching this space!
Mr Syn is a highly respected banker with years of experience in the Asian syndicated loan market.
