CutterAdvantEdge
The CutterAdvantEdge provides commentary on important investment systems and operational issues and is available to both member and non-member subscribers.
Issue 63, October 2008
Interview with Larry Kantor of Barclays Capital: Support and future plans for former Lehman Products
The acquisition of Lehman Brothers' North American investment banking and capital markets businesses by Barclays Capital raised red flags in the buy-side market regarding the firm's commitment to the Lehman indices, analytic data, and the POINT product. Reliance on these products within investment firms is substantial; any replacement would significantly impact business and technology processes, investment strategies, and potentially even fund performance. Recognizing the significance of the former Lehman products within the financial services industry and the reliance on quality data, Barclays has now communicated its full commitment to maintaining the stability and availability of the products and to expanding its services and tools with the integration of Barclays products and services.
What are Barclays plans for the Lehman indices? Will they continue to support POINT? What are Barclays plans regarding the availability and support of global indices and prices that have in the past relied on data from entities that are not part of the acquisition? Investment firms are looking for reassurance from Barclays that they are committed to maintaining and continuing with the enhancements for the Lehman products.
Kristen Lessard, Principal of Cutter Associates, interviewed Larry Kantor, head of global research at Barclays Capital, to answer these and other questions regarding the continued support and future plans for the former Lehman products. Joining the discussion were Nick Gendron, head of U.S. indices; Andy Sparks, head of POINT marketing; and Waqas Samad, head of global indices and POINT at Barclays Capital.
Was there a collaborative effort on the part of both Lehman and Barclays during the initial transition period of the acquisition?
Certainly. From the beginning, the team worked tirelessly through the transition period with little or no downtime to make sure clients had minimal interruptions in their Lehman products. Barclays moved quickly to announce its support of the indices and POINT at the initial announcement but were not able to do so because the bankruptcy was still in progress and legal constraints slowed down that process. But behind the scenes there was definitely a collaborative effort to make a smooth and rapid transition and once the legal issues were final, Barclays quickly announced its full support of the Lehman indices, pricing, and POINT. And despite the bankruptcy filing, the POINT team has continued working on the product and has received tremendous support from Barclays. The POINT team did have contingency plans in place but was not forced to use these options. It was a remarkably smooth process.
How important do you think the index business is to your capital markets business? Do you expect it will be as integrated into your capital markets business as it was for Lehman?
Yes, absolutely. The commitment I keep referring to isn't coming from me alone; obviously you need the support of the business as well. Think of it this way: if we weren't trying to extract as much value from these products as possible, then we wouldn't be very smart business people. We think our capital markets business will benefit greatly from having these products. We plan to leverage these products as much as possible. The only way to do that is to integrate them with our capital markets business and we are working around the clock to accomplish this goal.
Can you expand on how the acquisition has impacted the sourcing of analytical data and pricing for areas that are not part of the acquisition, such as the European Fixed Income division and Asia?
Number one, Lehman had almost no dependencies on trading desks in Asia for pricing and analytics, but has been more reliant on these desks in Europe. We are working to address that by leveraging Barclays Capital's large presence in Europe and by adjusting some of the processes in the U.S.
What is the status of the European Desk? How will this affect pricing and data points for securities covered by this desk?
In the past we've have multiple inputs to our prices. The plan now is to work in the Barclays Capital desk infrastructure and come up with the best possible pricing for European Indices going forward. Also, we are in the process of incorporating pricing inputs from Barclays traders. We understand that there will be questions around a whole new set of traders being entered into the process, but our goal is to make sure that any additions to the pricing process serve as enhancements and don't cause return spikes.
Does the Barclays trading desk plan to supply ABS pricing data and if so, when? Will this data be provided by the existing Lehman delivery mechanisms?
Definitely. The index team will be provided with whatever prices it needs. Everybody understands the importance of this on both sides, and I've already spoken to the trading heads about it. The delivery of pricing data will remain the same for the immediate future and any changes in the delivery structure will most certainly be communicated to clients.
Can you comment on the commitment to ongoing research and to enhancements to the risk models underlying POINT?
Everything is continuing. We have a portfolio modeling group within the POINT organization that works on risk models and it will continue to work on risk models. We are constantly refining and producing new risk models. We have already met with that group and they were very impressive; they are essential to POINT and will continue operating.
Can you confirm that the constituents making up the benchmarks will be the same, as well as their weightings, or should we expect changes?
The methodology for the Indices as well as the constituents of the indices will remain the same. Obviously we need to apply new issuances and remove the bonds that no longer meet the rules, but the same rules are in place. Our business is going to run in the exact same fashion as far as that is concerned. Regarding transparency of our rules, we go to great lengths to publish our rules and we're always here to answer questions about them. We do have an Index Advisory Council and we meet once a year to talk about index construction and other topical things in the index world.
Will Lehman Live website data also remain available?
Priority number one was to maintain the Indices and POINT, which required a lot of work. Lehman Live is currently being maintained as it has always been. We are also working to integrate the web portals. Lehman Live is as good as or better than anything out on the market so I think what you'll end up with is something that looks a lot like Lehman Live but will probably be even better.
We have several legacy applications that run off of the Lehman PC Product. Will the Lehman PC product continue?
Absolutely. We've been working with clients still using PC Product and hope to eventually transition them to POINT or a new data distribution mechanism. Our goal for PC Product is ultimately not to distribute it anymore, which has been made crystal clear to all of our clients, but we'll continue to work with those who are still on it.
Clearly Barclays is working hard (in a very short period of time) to maintain the integrity of the Indices & POINT, which could have vaporized overnight. Larry, can you provide an overall assessment of where the opportunity is moving forward, given the seismic shift in the financial sector?
I don't think we've ever seen an environment where risk management is as important as it is now, so these products are as valuable as ever. Barclays has truly acquired a jewel and we plan to enhance it and continue investing in it. We have the opportunity to leverage the indices and POINT much more effectively than before, both because of a much larger global franchise and because the competitive landscape has changed. We have every intention of taking full advantage of this opportunity, and it will be necessary to maintain, invest in and enhance both the indices and POINT to do that.