The results of the fourth standalone Global Custodian survey of clients of the main securities lending agents are published today.
The survey took place at a time when the securities lending industry has yet to recover from the effects of the financial crisis of 2007-08. Shrinkage in the investment banking and hedge fund industries, combined with the reduced appetite for and availability of leverage, has reduced demand to borrow sharply. Simultaneously, lenders have tightened their risk management criteria, and have reduced both the range of counterparties they approve and the types of collateral they are willing to accept.
As a result, the earnings of agent lenders have fallen by as much as 80% since their cyclical peak in early 2009. Scoring and comments by respondents this year do reflect the consequent pressure on the earnings of beneficial owners from lending their portfolios. One respondent would like agent lenders to do a better job of selling the lenders point of view to borrowers. Comments also indicate a high degree of concern among lenders as well as borrowers about public perceptions of the industry, and the potentially adverse effects of tighter regulation in response to what most see as misplaced criticisms of securities lenders and the short sellers they support. A respondent says that unknown industry regulation and anti-business regulatory structures are blighting the industry.