In 80 years the world’s financial markets and the corporate landscape have been transformed out of all recognition. Somewhere along the way Eurobonds, financial futures, securitisation and derivatives were all invented. But by whom? Geraldine Lambe tracked down some of the great innovators of the past few decades and talked to them about the times when long-dated floating rate notes were regarded as dangerous products, the futures business meant pork bellies and orange juice, and a $1m fee was considered outrageous.

 It is difficult to pin down Hans-Joerg Rudloff, chairman of Barclays Capital and doyen of the Eurobond markets, on a particular topic. It is almost impossible to get him to talk about particular deals from the glory days of the Eurobond markets – a market that at the time The Banker went to press, was valued at $12,314bn, according to figures from Thomson Financial. “Does it matter which deal came first, or which was the biggest? Each one played a role in developing the international market.”

This small, charismatic man – as much an economic historian as a banker – prefers to talk about the broader picture, the politics and economics that drive the markets, rather than linger on a particular transaction. “If you look at the macroeconomic background, then the deals that make the market become clear. The genesis of a product becomes obvious.”

In the Eurobond markets, for example, long-dated floating rate notes – seen previously as dangerous products that cemented inflation – could only grow into a deep, liquid market (which Credit Suisse First Boston dominated under Mr Rudloff’s stewardship) when governments entered the picture; and they only became issuers out of necessity in the 1980s.

“Until then, we’d done a few floaters, but government entry makes a market ‘serious’. Why did governments begin issuing floaters? Simple. They couldn’t borrow money – US rates were then at about 15%; triple As were around 13%-14%. You see it’s not just people sitting around designing an ideal market on a blackboard. The markets wouldn’t have developed without the macroeconomic events pushing them,” says Mr Rudloff.

 Risk takers

 If policy makers were important, so too were the risk takers, the market makers. If in the 1980s the Euromarkets could not have been developed without the new ideological approach of UK prime minister Margaret Thatcher and US president Ronald Reagan – the policy makers who pushed the deregulation that opened-up opportunities for bankers – “you needed creative people on the other side to create the instruments which reflected that”, says Mr Rudloff.

“The history of the Eurobond markets is made of such people: Minos Zombanakis, Winfred Guth, Robert Genillard, Sigmund Warburg, Stanislas Yassukovich and Michael von Clemm. These were the fathers of the Euromarkets; the internationalists who knew by age and experience how capital had been imprisoned and countries had become constrained. They changed that.”

Even though the Eurobond market had been developing since the 1960s – arguably opening with the 1963, $15m bond from Italian toll road operator Autostrade – Mr Rudloff says that by the 1980s many in the Euromarkets were still seen as rebels and outcasts. “I remember being called a buccaneer. A pirate operating in international waters. I was very upset at that. I saw myself as very serious,” he says smiling from ear-to-ear.

What remains constant is Mr Rudloff’s enthusiasm for the business, and his glowing belief that markets, mercurial and risky though they may be, are the best solution for the world’s economic and social challenges. “By removing barriers, we have been making markets riskier and riskier, but it’s driven by the belief that, while market forces create shocks they also correct; in then end they do make people better off.”

 Pragmatic streak

 There is a strong pragmatic streak running through this man, whose ruthless reputation has been mellowed with time. It is the pragmatism of an historian. The biggest mistake, he says, is to become wedded to an idea or a policy because what is good today may not be good tomorrow.

“All systems, however good, outgrow their usefulness. Bretton Woods allowed things to be corrected but eventually was overtaken by macroeconomic events. Argentina cured its rampant inflation by pegging the peso to the dollar but was eventually undone by the rigidity of that peg. The politicians’ failure was their inflexibility in the face of change. You have to be pragmatic; there is no ideal model.”

Retirement is not on the horizon for Mr Rudloff, who still gets too big a kick from being at the “fulcrum” of the world. “Savings in, money out. In the middle, we repackage, recreate, refinance; linking markets and instruments. It’s like being a spider in the middle of the web. It’s always interesting. Sometimes it’s discouraging – at the moment, markets are being abused ruthlessly for P&L – but for optimists like myself, there is always something positive to be created.”

The size of the financial futures market currently stands at about $230,000bn outstanding contracts. We may now take for granted the ability to hedge currency exposures or interest rate risk in liquid financial derivatives markets – enabling companies to peg the cost of their foreign currency needs, for example – yet until the early 1970s, few even spoke of “derivatives”. If they did, the concept certainly was not applied to anything other than commodities such as pork bellies and orange juice. Little surprise that the creation of financial futures is seen by many to be the most important financial innovation in more than 30 years.

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FINANCIAL FUTURES: LEO MELAMED 
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M&A: JOSEPH PERELLA 

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