UBS European Conference 2014 Preview insights Bill Winters CEO and Chairman of Renshaw Bay Bill Winters, is CEO and Chairman of Renshaw Bay, an alternative asset management and advisory company founded in partnership with Mr Johann Rupert’s Reinet Investments and Lord Jacob Rothschild’s RIT Capital Partners. Winters left JPMorgan in 2010, having been the Co-CEO of the JPMorgan Investment Bank since 2003. He had joint responsibility for the firm’s global businesses across sales, trading, research, capital raising, lending and associated risk management. Having joined JPMorgan in 1983, he held management roles across Markets areas and Corporate Finance. He moved from New York to London in 1992. He was a member of the UK Independent Commission on Banking, which made its recommendations to the Government on the structure of the UK financial industry in September 2011. In late 2012 he completed a review of the Bank of England’s liquidity operations which was presented to the Court of the Bank. He also acted as a specialist advisor to the Parliamentary Commission on the Banking Standards during 2012 and 2013. Winters received an MBA from the Wharton School at the University of Pennsylvania and a Bachelor’s degree in International Relations from Colgate University. He is a member of the Boards of Novartis, the International Rescue Committee, Colgate University, the Young Vic Theatre and The Print Room. Winters is a dual UK / US citizen. He was made Commander of the British Empire (CBE) for services to the Economy and UK Financial Services in the Queens Honours in 2013. Pre-conference Interview with Bill Winters In a recent conversation, Renshaw Bay’s Bill Winters, a former CEO of JP Morgan’s Investment Bank who has served on the UK Independent Banking Commission, discusses a few themes that the panel will explore: You bring more than 25 years of experience in capital markets and structured finance to the panel. How does that influence your view of the lessons learned from crises past, and what needs to be done to avert the next one? It gives me a certain perspective on the imbalances that are building up in the current environment. The topic of our panel raises the question of how these imbalances will be dealt with in the next crisis. What are some of the themes you expect to hear in the panelists’ comments? One of the themes I’ll put on the table is the question of how well market liquidity has adjusted to the regulation that came after the financial crisis. There remain significant structural liquidity problems in the markets that have been masked by the fact that central banks have been the providers of liquidity. At the same time, post-crisis regulation and tighter capital requirements have had the effect of reducing the market-making capacity of the banks. Issuance has continued to be very heavy in this low-yield environment, so institutional portfolios of securities are significantly larger than they were just a few years ago. Those imbalances have implications for our ability to manage through the next shock. So you see the markets as structurally still vulnerable? I’d expect that private markets would function very poorly if there were an exogenous shock now. With diminished market-making capacity, we have less of a liquidity buffer in periods of extreme stress. Therefore, central banks would have to step in, in even more extraordinary ways, not just in bond markets but all markets. Central banks have put some facilities in place to do that, but some of that intervention would have to be done on the fly. That poses further risks to the system. When a response is made on the fly, there’s “I’d expect that private markets would function very poorly if there were an exogenous shock now.” always risk that it’s either inadequate or excessive. because they are always the most important link in the chain. They concentrate on developments that could impact the banking system, rather than things that could impact the economy more broadly. But the issues in a crisis go beyond the banks themselves. extending state support and introducing moral hazard to profitseeking entities is going draw criticism. Central banks will always What other issues should be have a role providing for smoothly part of a discussion on dealing functioning markets in a crisis but with the next crisis? this must be balanced against the dangers or moral hazard. While it My second theme would be will always be possible that some “shadow banks” - or non-banks Are you saying policy makers market participants may benefit - the risks they pose and how to need tools to deal more broadly disproportionately from state deal with those risks in the event with a crisis? intervention in a crisis, it is critical of a financial shock. The Financial that intervention mechanics are put Stability Board and other relevant in place ex ante that are designed authorities have said they’re looking Yes. Contrasting the US and European experiences in the crisis to avoid benefiting individual at non-banks that engage in market paticipants. extensive maturity transformation, is a useful exercise on this point. Banks are just not that important ones that are excessively or highly Panel Information in the U.S. to the functioning of leveraged, and non-banks that the macro economy, so when are so big as to cause potential Financial Crises Past: Lessons for the things really started to get ugly problems. So they have reviewed Future’ the Fed quickly realized that simply a selection of Asset Managers liquifying the banks wasn’t enough. “Financial Crises Past: Lessons for the but none have been identified as They needed not only to liquify systemically important financial Future” will be the focus of the lead panel on the first day of the UBS European the banks but also to inject money institutions as of yet. Conference in London November 11-12. directly into the commercial paper market, money market funds, What have they done so far in Moderated by Myles Wright of UBS, the directly into the insurance industry. this area? panel will bring together an impressive And they needed to be buying group of academics and experienced It’s important to note that the bulk nongovernment bonds outright executives in banking and capital markets: of regulation in this area has come in order to protect the financial • Bill Winters, CEO of Renshaw Bay, an system as a whole and to protect through the regulation of banks’ independent asset management firm the macro economy. dealings with non-banks, rather • Dr. Nouriel Roubini, Chairman & Cothan through the direct regulation Founder of Roubini Global Economics How did that compare with of them. The Financial Stability • Prof. Richard Roberts, Professor of Contemporary Financial History, King’s European response? Board made a statement recently College about minimum repo haircuts, • Athanasios Orphanides, Professor of Generally, the Europeans didn’t probably the first important step the Practice of Global Economics and do that. The UK had a modest that is really targeted at the nonManagement, MIT corporate bond-buying program, banks themselves. But the rules • JamEs Aitken, Partner, Aitken Liability only apply to the banks’ financings which was effective in bringing Advisors LLP • Simon Smiles, UBS Wealth Management, spreads down to manageable with a non-bank, not directly to Chief Investment Officer non-banks. There’s also been a lot levels. But basically the Bank of England, the European Central of focus on banks’ transmission Visit the UBS Conference website for the channels, such as prime brokerage. Bank and even the Bank of Japan latest agenda. don’t have the tools to intervene That’s been the theme so far. In terms of focus on “shadow banks” in markets beyond what they can Follow @UBSemea #UBSeuroconf to find out more and follow live updates during themselves, there has been a lot of provide the banks directly. That’s the conference. changing. It has to change. discussion, but no action. What are some of the reasons for that? What’s the biggest challenge to making those changes? In every crisis, I think the regulators focus at the outset on banks These are politically difficult issues. Any suggestion that you’re *Subject to change The views and opinions expressed in this material are those of the author and are not those of UBS. Accordingly, UBS does not accept any liability over the content of this material or any claims, losses or damages arising from the use or reliance of all or any part thereof. © UBS 2014. The key symbol and UBS are among the registered and unregistered trademarks of UBS. Other marks may be trademarks of their respective owners. All rights reserved.