Credit Matters

If you type in the words "corporate bonds" and "bubble" into Google you are clearly bored at work. It does seem though that over the last month or so that there have been a lot of warnings of the dangers of the bubble in corporate bonds that we are experiencing.

I think it was The Pretenders who sang "It’s a thin line between love and hate". And it most certainly is. Contrast and compare how the media and people in authority treat the likes of Fred Goodwin and John Varley. The former is now regarded as a pariah in polite society; the latter is still treated with respect by parliamentary committees and would be a welcome guest at many people’s dinner parties.

What’s the price of a cup of tea got to do with corporate research? Absolutely nothing — except to Gary Jenkins who finds that a sip of cheap Darjeeling takes him back to his early days at BZW and reminds him of the fundamental truth about credit analysis: companies go bust when they run out of cash.

When Lloyds TSB management bought HBOS, just what profitability did they think they were actually buying? The £10bn-£16bn it notched up in 2004 to 2006 or the much more realistic 1997 performance when the bank produced net income of around £1.5bn? Gary Jenkins fears it was the former when it should have been the latter.

Gary Jenkins, the former head of credit research at Barclays Capital and fundamental credit strategy at Deutsche Bank forged a reputation as one of the most incisive and quirky of market commentators — until he took a year’s sabbatical just as the market was getting interesting. Now he’s back, at Evolution Securities, and doing what he does best: angering, humouring and provoking credit investors.