FLASH FRIDAY: History Rhyming 

FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.

An obscure part of financial markets plumbing leading to a potential crisis in markets and rumours about an investment bank being in trouble as its credit default swaps reach an all-time high. You could be forgiven for thinking it is 2008 but as Mark Twain reportedly said: “History doesn’t repeat itself but it often rhymes.”

In addition, last month the Bank of England was forced to intervene to prevent a sell-off in bonds, gilts, after the new government laid out a ”mini budget” which included borrowing to fund tax cuts with the aim of boosting growth. 

UK pension funds use liability driven investment (LDI) to match the cost of future pension pay-outs with the value of the pension fund’s assets via derivatives. As gilt prices fell rapidly, pension funds were forced to sell more gilts leading to a downward spiral in prices until the Bank intervened. 

Ian Stewart, Deloitte’s Chief Economist in the UK wrote in a blog in Reaction: “The episode illustrates how financial systems, subject to rapid falls in asset prices and soaring volatility, can buckle, risking a cascade of effects across the real economy. In a crisis, the network of connections which enable financial systems to operate can spread and amplify damage far beyond the site of the crisis.”

The Financial Times reported comments from sources in the City of London who said the UK had come faced a Lehman-Brothers like financial collapse which followed the unravelling of more financial plumbing, collateralized debt obligations (CDOs) which securitised mortgages. 

During the last financial crisis it was argued that if Lehman Brothers had been Lehman Sisters, the outcome might have been very different. A decade after the collapse of the US investment bank in 2018, Christine Lagarde wrote in a blog when she was head of the International Monetary Fund that more women on the boards of banks and financial supervision agencies is associated with greater stability. 

“Greater diversity always sharpens thinking, reducing the potential for groupthink,” she said. “This very diversity also leads to more prudence, and less of reckless decision-making that provoked the crisis.”

The argument might not hold true since the UK mini budget was put forward by the new Prime Minister, Liz Truss, and her Chancellor Kwasi Kwarteng. Nevertheless, progress has been made since 2008 with more women in senior positions such as Jane Fraser becoming chief executive of Citi in 2021, Adena Friedman becoming president and chief executive of Nasdaq in 2017 and Lynn Martin taking over as the second female president of NYSE at the start of 2022. 

Last month State Street Corporation announced it has appointed Yie-Hsin Hung as president and chief executive officer of State Street Global Advisors, its asset management business. She succeeds Cyrus Taraporevala, whose planned retirement was announced earlier this year. Hung will join Global Advisors in December 2022 from New York Life Investment Management, where she had been chief executive since 2015. During her tenure NYLIM achieved a nearly four-fold increase in assets under management.

In Europe Kirstie MacGillivray recently became chief executive  of Aegon Asset Management UK, a buy-side firm with €315bn assets under management. She had previously  been the head of multi-asset dealing & treasury at the firm since 2008.

Progress is also shown by the increased number of nominations for Markets Media Europe’s European Women in Finance Awards 2022. The first in-person European Women in Finance Awards ceremony is being held on Thursday 13 October. Let’s hope that history repeats itself with increased nominations next year.