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JP Morgan has been added as a dealer to Fujitsu's $500 million Euro-MTN programme.

Genossenschaftliche Zentralbank (GZ) issued a Z275m ($60.5m) zero coupon five year zloty Eurobond on Wednesday, at an issue price of 51.26 and a reoffer price of 50.26, via lead manager Deutsche Bank. The zero coupon reflects a division in the market between institutional and retail demand, thanks to short term currency concerns.

HypoVereinsbank suffered again from declining faith in the Neuer Markt this week as the bank was forced to pull the Eu19m-Eu24m IPO of web-contained management specialist HexMac. The deal was irreparably damaged by a fall of over 3% on the Nemax all-share performance index on the final day of bookbuilding, but had also been impeded by a disappointing grey market price.

The three Icelandic borrowers in the Euro-MTN market are battling hard for investor attention. Each issuer relies heavily on Euro-MTNs for its funds but few big investors are looking seriously at Icelandic paper. Some blame the Icelandic central bank, saying it did a poor job of advertising Iceland to the investment community. Others think it is a natural consequence of being a small country. But Icelandic issuers have achieved surprisingly good levels of issuance. FBA won MTNWeek's best new borrower award last year and has now merged with Islandsbanki to become the biggest issuer in Iceland. Landsvirkjun is rated Aa3 and is guaranteed by the state. It has raised $443.21 million off 16 trades. And Landsbanki Island (Landsbanki) has proved its critics wrong after successfully raising $241.43 million in the four months since signing, according to MTNWare. Also, Bunadarbanki is expected to be signing soon, depending on its rumoured merger with Landsbanki. But Michael Bransford, MTN desk at Merrill Lynch, thinks more issuers may add to the problem. He says: "There may be a crowding-out effect with new Icelandic borrowers since investors have limited lines to the Iceland region." And William Symington, senior funding manager at Islandsbanki-FBA, thinks it is up to the established borrowers to sell their debt further. He says: "The main issue facing Icelandic borrowers is that there are comparatively few institutional investors who have established credit lines with Iceland. The country limits for Icelandic paper need to be increased, and in some cases set up for the first time." According to Stefan Petursson, treasurer at Landsvirkjun, the solution will involve a lot of hard work. He says: "We need to increase investor education about our specific programmes, and also advertise Iceland's credit story. Iceland's ratings have improved steadily over the last four or five years and our economy has become an example to follow." Landsvirkjun is Iceland's national power company. It was the first Icelandic borrower to set up a Euro-MTN programme when it signed a $1 billion facility in May 1998. It has kept to the seven- to 10-year sector, and did its first trade in Czech koruna in July. It has also issued trades in Norwegian krone and Deutschmark. Petursson says: "Because the swap market in Icelandic krona is quite small we tend to keep our own portfolio of currencies. Germany and Japan have been our most important markets so far, but we would like to see more flow out of southern Europe." Landsvirkjun's Aa3 rating stands it apart from Landsbanki, rated A3, and Islandsbanki-FBA, rated A2. And credit ratings are a vital factor in such a small sector. Islandsbanki-FBA's euro2 billion ($1.8 billion) programme was signed in July this year. It replaced FBA's euro1.5 billion and Islandsbanki's euro750 million facilities after the two banks merged, and subsequently had its rating raised from A3 to A2. The merged bank is now in a strong position to bolster its issuing volumes. Symington, at Islandsbanki-FBA, says: "The central bank is currently repaying its debt and consequently is not issuing much at the moment. As a result Islandsbanki-FBA is now, by default, the most active borrower in Iceland." He adds: "We expect to make one further public transaction this year. And we are going to target more specific geographical areas outside of Germany and Japan." Landsbanki can also claim to be doing better than many expected. It signed its $600 million Euro-MTN programme in April this year and the choice of Bank of America as arranger raised some eyebrows. The dealer panel, including the likes of Banca d'Intermediazione Mobiliare and Bankgesellschaft Berlin, also came as a surprise. Gunnar Andersen, managing director, international banking and treasury at Landsbanki, admits that the dealer panel did not contain the recognized MTN names. But he says: "On a US and European scale we are a small bank, but we have built up good relationships with certain dealers over the years. We chose our dealers on the level of attention they would give us and on their past performances." Andersen wants to increase issuance, and says: "This year the euro has met a large part of our funding needs, but in the future we will probably be looking to sell dollar notes. We are also getting involved in Italy, Austria and Spain and would like to sell more paper into southern Europe and France." As southern Europe is a good buyer of wider spreads, dealers think this is a good move for the lower-rated issuers. Simon White, principal, London syndicate desk at Bank of America, says: "Southern Europe primarily offers diversification. These issuers are already well-known in northern Europe and there is a limit to the amount of credit the investors there can buy." And expansion is key. Almost 100% of Landsvirkjun's funds have come off the MTN programme and 75% of Islandsbanki-FBA's funds have come the same way. Landsbanki expects to raise another $300 million off its programme this year which will take it very close to its ceiling. White is confident that there will be enough interest to satisfy everyone. He says: "The continuing re-emergence of Japanese institutional investors in the global market place means there will regularly be investors looking for paper in the short-end."

The A2/P2 sector in the Euro-CP market has been given a further boost by Imperial Tobacco signing a euro1 billion ($967.1 million) facility. Imperial Tobacco is the first European corporate to join the Euro-CP market this year, but it follows a trend of US corporates to have entered in the last few months. Only eight issuers rated A2 by Standard & Poor's signed facilities in 1999, but dealers report there's much more to come this year. Jonathan Riley, group treasurer, at Imperial Tobacco, says: "If you look back 15 or 18 months, there were only a couple of billion dollars outstanding from the A2/P2 sector. But it is now reported that there are over $20 billion outstanding. The sector has blossomed wildly." He believes that the market has matured enough to cope with such a major new name. He says: "We hope to have $300 million to $400 outstanding. That is not too large an amount for the market to sustain." Imperial Tobacco's signing follows its Euro-MTN programme, which was launched in September, last year. It issued a euro750 million public bond in the same month but since then has been silent in the debt markets. However, Riley says: "In a month or two we will be happy to post levels in the private market." The borrower also has an active $1 billion US CP programme which it intends to use in tandem with its Euro-CP facility. Riley believes it is important to have a variety of funding options open to the company. He says: "We hope the programmes will lock in together. They will complement each other." But the signing comes at an unfortunate time for Imperial Tobacco. This week it was pushed out of the FTSE 100 index. However, Riley says that this will not cause any problems in selling its name. He confidently says: "From a fixed income investors point of view it is not an issue. I will have a far easier job raising debt than one of the new dot com companies." Lehman Brothers won the arrangership off the UK corporate's facility, only its third since February 1999. It joins Credit Suisse First Boston (CSFB) in the dealer group. According to CPWare, this is CSFB's third dealership mandate since it rejoined the market in August 1999.

The Italian treasury is expected to award a mandate next week to lead manage its securitisation of delinquent contributions to INAIL, the government agency that provides mandatory insurance for companies against industrial accidents to staff. The deal has been structured by Banca di Roma, BNP Paribas, Finanziaria Internazionale and JP Morgan. The treasury originally intended to hold an auction for the underwriting mandate, but it is now keen that the deal should close by the end of October, leaving very little time for a competition.

Islandsbanki will become the third Icelandic issuer to enter the market when its signs its euro750 million ($727.89 million) Euro-MTN facility next week. It joins Landsvirkjun and FBA Icelandic Investment Bank, which won MTNWeek's best new borrower award of 1999. Also, it is rumoured that Agricultural Bank of Iceland, which has been eyeing the market since 1998, is to finally sign. Olafur Asgeirsson, general manager in Islandsbanki's treasury, is thrilled to be joining such successful names. He says: "We are looking forward to participating in the market. We intend to do one or two public issues off the programme each year, but for the rest of the time we shall use it opportunistically." The issuer has yet to decide on whether it will launch a public inaugural deal but admits it is likely. Islandsbanki is Iceland's second largest commercial bank and the only one to be privately owned. It was formed in 1990. Last year it attempted to merge with Bunaoarbanki to create the largest bank in Iceland but the government stopped the deal. Islandsbanki still hopes to push the merger through. All issues off the Euro-MTN programme will be swapped back into either euros or dollars. Asgeirsson says: "These are our first steps in the market so we thought it would be good to get a full range of distribution. Yen is a possibility but it will have to be swapped back." Islandsbanki's competitors have found the Japanese market receptive to Icelandic issuers. Over half of FBA's outstanding issues are yen notes. In credit terms it is comparable to FBA, also rated A3 by Moody's. It has no rating by Standard & Poor's but is thinking of obtaining one in the future. Most of Islandsbanki's funds come from its retail deposits. But it has two five-year dollar FRNs outstanding in the public market and also relies heavily on syndicated loans. The Euro-MTN issuance will be mostly under five-years. Deutsche Bank is the arranger. The dealers are Bank of America, BNP Paribas Group, Chase Manhattan, Daiwa SBCM Europe and the arranger.

Nomura began roadshows this week for an innovative Eu1bn securitisation backed by Swedish residential mortgages originated by the Swedish National Housing Finance Corp (SBAB). In an extremely unusual move for a European securitisation, the deal will include a tranche in yen - and it may also become the first European ABS to be distributed on the internet.

Sri Lanka Standard Chartered has signed banks into the $30m 364 day trade financing for Bank of Ceylon.

It is often presumed that US houses dominate the Euro-MTN market. But with UBS topping MTNWeek's league table, and CSFB enjoying a bumper year this is far from the truth. MTNWeek has invited UBS's head of Euro-MTNs, Gavin Eddy, and CSFB's head of Euro-MTNs, Simon Hill, to debate the big issue of 2000: Is the structured market dead? To: simon.hill@csfb.com From: gavin.eddy@ubsw.com Dear Simon I think you'll agree whilst the structured EMTN market is not dead it is certainly suffering severe paralysis. And I don't think it's temporary. The percentage of structured business in the EMTN market has fallen from a peak of 44.13% in 1997 to 28.17% of total volumes in 1999 and a feeble 21.87% in 1H2000. The appeal of structured business clearly moves in tandem with the macro economic environment. And rising interest rates in the major currencies coupled with erratic equity markets accounts for some of the fall-off. But there seems to be an indisputable underlying trend: The EMTN market is in transition from being a structured market to being predominantly a generic credit market. There are plenty of potential reasons for this demise. One major factor has been the impact of EMU on previously fragmented national markets in eliminating arbitrage and therefore structuring opportunities. So too has the greater focus generally on credit risk rather than market risk as a strategy for yield enhancement. There are also growing numbers of corporates who are either not interested in, or are not considered suitable for structures (investors usually don't want to combine market risk with credit or event risk). For institutional investors the benefits of a bespoke EMTN may often be outweighed by its limitations. Liquidity for non buy-and-hold investors can be very limited and the bid/offer on the issuer credit spread can be prohibitive if you need to resort to the asset-swap market. Regulatory changes too, facilitating the use of over-the-counter (OTC) derivatives by investors, mean that structures can be more efficiently achieved OTC rather than embedded within EMTNs. Certainly there will always be a structured EMTN market. But gone are the days when issuers could name their price for issuing structures on the basis that flexibility and responsiveness are rare commodities. Increased transparency will also mean that the business that remains may become increasingly commoditized. To: gavin.eddy@ubsw.com From: simon.hill@csfb.com Gavin, thanks for the e-mail. No figures for structures as a percentage of EMTN flows are reliable, because so many structures are either mis-classified as fixed rate or are unknown. What is clear is that interest-rate structured note flows in Europe have dropped off dramatically, equity linked flows in Europe seem to have held up but are small in size, while thousands of structured notes are sold into Japan each year. The structured market is not dead. It is also clear that the proportion of flows where the investor takes credit risk are rising rapidly as more and more companies tap the market. Total flows for new issues, rated below Aa3 or AA-, in first half 1998-2000 were $82 billion, $123 billion and $184 billion respectively. Triple-A flows grew more slowly. These sub AA flows are almost entirely vanilla and are, of course, a core part of the EMTN market. You may be right in saying structured trade flows now form a smaller part of total flows than a year or two ago. So? The new lesser-rated issuers are adding to the EMTN market total and not subtracting from the structured market. There are still thousands of structured trades for the market to do - there's no need to shut down the MTN desk and and get a job on syndicate just yet! From an issuer's perspective, structured MTNs provide a lot more than just funding. They provide arbitrage funding, typically five to 10 bps tighter than the public market. The value added to issuers must be enormous. Let's estimate the size: assuming in 2000, X billion of structures with an average term (adjusted for calls) of Y years, and an average saving of seven basis points, that gives Z $billion of issuer side savings this year. Structures matter to issuers, some more than others admittedly, but they matter. To: simon.hill@csfb.com From: gavin.eddy@ubsw.com Dear Simon I agree that accurate data for the private placement market is hard to come by. However, I think it is fair to assume that year on year the percentage of trades not captured or incorrectly classified is fairly constant. In fact you might argue that the accuracy should have improved as the market has become more transparent. The trend suggested by the data is undeniable. Whilst not wishing to sound like a turkey waiting for Christmas, and no one would dispute that EMTN desks still derive a significant proportion of their volumes and revenues from structured trades, I think we should be looking to the future of the market not the past. Regulatory impediments to structured business are only likely to get more onerous not less. Witness the impact of FASB 133 on the US issuer's appetite for issuing structured notes. Signals that International Accounting Standards may adopt the same accounting principles will presumably have the same effect. Japan too has seen a significant reduction in institutional structured business since the introduction of new mark-to-market rules. Certainly one of the most robust areas of demand for structured products has been, and will continue to be, retail. However this business is not very diversified, dominated as it is by the equity reverse convertible market. As such it could arguably perish as equity market sentiment changes. Moreover, retail business is heavily concentrated within a small number of issuers. In Japan these are primarily the quasi-sovereigns and supranationals, and in Europe they're the investment banks themselves and bank issuers with their own retail networks such as BGL and Credit Lyonnais. Even assuming this area of business holds up, it still doesn't bode well for the numerous other opportunistic borrowers who are reliant on structures for funding. I don't dispute that structured business matters enormously to issuers. What I say is get it while you can because it may not be there forever. To: gavin.eddy@ubsw.com From: simon.hill@csfb.com Gavin You are right to say that institutional investors who wish to trade in and out of structures are best advised to buy either short dated notes or trade OTC when the primary-secondary structured MTN bid-offer spread can easily hit 25 basis points. I hope though that better market efficiency, such as more non-bank participation in the asset-swap market and inserting asset-swap style puts into the borrower's swap contract, will reduce this in time. However there are still some buy and hold institutions out there, and not all are able to separate investment into vanilla cash bonds and structured OTC products, because the risk of loss is greater than the principal invested. It's also easier to buy MTNs, and some regulators prefer an MTN to the cash/OTC combination because it is more transparent. Structures are exciting products for retail. They do useful things, such as giving stock market participation while protecting capital. So demand will continue though it'll have its ups and downs of course. Your argument that retail structured note issuance will be dominated by a few issuers is supported by current flows. But I don't believe it will win out in the long run as it implies that retail will be forced into buying expensive issuers rather than the funding being channelled to those borrowers that need the money. Then again, if a turkey can vote for Christmas. . . The opportunity costs of FASB 133 are heavy for US issuers. US issuers find cross-currency swaps difficult never mind structures. Some US corps financing local currency needs in the local bond market (especially yen and sterling) have lost millions versus the swapped-out cost of the US domestic market. If FASB was adopted internationally it would kill off the structured note market except for a handful of specialist issuers able to handle the accounting complexities and risk of P and L volatility. Scary thought. To: simon.hill@csfb.com From: gavin.eddy@ubsw.com Dear Simon So, does the structured EMTN market have a future? At its historical levels of activity I'd argue no. Volumes of institutional structured business will continue to fall, offset in part by retail business where the ability to package products is more important. The winners in the long term will be the credit borrowers and the bank issuers with their own retail networks. The losers will be the highly opportunistic issuers who will either have to cheapen up their levels or find themselves priced out of the market. However, I'm sure you'll agree that one of the enduring features of the EMTN market is its ability to adapt to change. Perhaps the current redefinition of the market is a little more fundamental than previous ones, but it is nevertheless something to be embraced. Rip up your CV, there's life in the EMTN market yet. To: gavin.eddy@ubsw.com From: simon.hill@csfb.com Unless the market manages to do something about the liquidity of structured notes, many institutions will continue to prefer to buy OTC structures rather than notes. For retail in short dates, it will be more convenient for the bigger distributors to self-issue, though the less consolidated the network, (eg Japan) the more attractive independent issuer MTN brand names become. In longer dates the spread effect of credit is powerful. So issuers like the GICs and the single-A corporates should increase in popularity, parallelling the growth of credit in the public markets. But, if FASB 133 style measures were implemented widely, the market would revert to a select number of specialized opportunistic issuers with the systems and the will to cope with the accounting difficulties.

Italian banks are creating their own niche in the market. Six have signed this year but they are a different breed to other European banks. They issue just a fraction of the huge volumes raised by German, UK, Dutch and French banks. But while others opt mainly for plain vanilla private trades, the Italians go for structures. And they favour mid-term maturities, avoiding one-year tenors almost completely. The 37 Italian banks in the market have raised $2.86 billion off 99 private placements this year. This is nearly double the 50 private trades issued in the same period last year, according to MTNWare. Consolidation is driving growth in the sector. An official at Banca Commerciale Italiana's (BCI) syndication desk says: "Mergers and acquisitions in the sector are creating substantial need. The structure of the Italian banking sector has been under pressure for about four or five years now and MTNs represent a good source of funding." But an official at Banca Monte dei Paschi di Siena (Paschi) points out that there are other factors driving the market. He says: "There has been a process of aggregation in the Italian banking system, but I wouldn't say it is the main reason for the signings. A drop in the profitability of senior paper is probably the most important reason." Italian bank issuers are losing their confidence in senior paper. The official at Paschi adds: "There is a decline in the potential of senior paper and the domestic network doesn't allow you to raise the volumes needed. There's a lot of competition and it doesn't allow you to squeeze the spread. Senior paper is seen as a losing game." Luca Favero, MTN desk at Donaldson Lufkin & Jenrette, explains that senior debt doesn't always make sense for Italian banks. He says: "Italian banks see more proposals from dealers for subordinated debt. For senior paper it is more difficult to match their targets with investors' expectations." Italian banks cannot compete with their similarly rated US counterparts, which issue senior debt at low prices. Favero adds: "The banking system in Italy is in an early stage of consolidation compared with other countries. The US banks cannot obtain very cheap funding domestically, so in the international market they are willing to pay wider spreads over libor. As a result, Italian banks find themselves competing with similarly rated banks that pay more to the investors." Daniel Cogoi, head of MTNs at BNP Paribas, suggests there is another reason why they are turning to the MTN market. He says: "Their retail network is getting saturated with their own bonds, both senior and subordinated. Although the price in the retail network is good for issuers, it can be exploited with more profitable products, typically funds." There is one area where Italian banks are especially making their mark. This year they have issued a higher proportion of structured private notes than any other banking sector, according to MTNWare. Typically, 25% of private trades issued by banks are structured. But Italian banks are more adventurous: 67% of their paper is structured. Italians have an accommodating attitude towards their investors. The official at BCI says: "Our investors want structures. They cost less. It's not a question of choosing structures, but giving the clients want they want. We do a lot of reverse floaters, reverse convertible and other more complex products linked to equities, equity baskets and equity indices." Cogoi, at BNP Paribas, agrees that this sector is willing to accommodate the investors' needs. He says: "They are active on structures because they are flexible: they do both interest- and equity-linked. They are also very opportunistic and ready to meet the investors' demands." But they are not so flexible when it comes to accepting different maturities. Just 4% of private placements issued by Italian banks have a maturity of one year or less. The average for the whole banking sector is 30%. Italian banks issue so few short-term trades because Banca d'Italia, Italy's central bank, regulates them closely and discourages them from issuing short-dated trades in the capital markets. They can also obtain short-term funding at sub-libor levels in the domestic market, which is cheaper for them than the euromarket. Banca Toscana, which signed its euro1.5 billion Euro-MTN facility in 1999, is typical: the majority of its issues have three- to six-year maturities. Silvio Bencini, chief financial officer at Banca Toscana, says: "We've done one three-year trade and some six-year notes because there is fixed tax on six-year maturities." Lack of short-term issuance also explains why Italian banks are almost entirely absent from the yen private placement market. Of the 99 private trades issued by Italian banks this year, just three have been in yen. Crediop issued all of them. Favero warns that there will be some work to do before Italian banks have satisfactory name recognition in Japan. He says: "Japanese investors don't know the Italian issuers well. They tend to go for state-owned European banks because they feel more secure." But some issuers would like to change this and branch out into the yen sector. BCI's official says: "Most of our buyers are Italian retail investors. They're not interested in yen. Of course we would like to have more sophisticated investors from Japan and outside Italy."