In the zone

Mitsubishi UFJ Securities International's Eva Olsson gives Hannah Langworth the lowdown on the eurozone crisis – and the huge impact it's having on what she does

Eva Olsson thinks the eurozone crisis is pretty easy to explain: "Too many European countries have taken on too much debt." Years of easy access for governments to bank funds and lax European regulation of public finances are now causing economic and political turmoil across the continent - and it's "totally changed everything I do".

Good view

So what exactly does Eva do? She is a Director in Mitsubishi UFJ Securities International's Credit Strategy team in London, where she conducts research and formulates trading strategies. What that means is that Eva spends her time on analysis of (mostly debt-related) securities - "interest rate products, ones linked to commodity prices, emerging markets loans, bonds issued by corporates and financial institutions, and even some Japanese equities" - to form a view for her clients on whether a particular asset is a good investment, either right now or at some point in the coming months. She has many institutional clients - managers of pension funds and some in other types of asset management - and also advises private bankers working with wealthy individuals on their investment portfolios. For all her clients, she examines and summarises financial information available about particular products, writing several regular reports. She also helps them strategically, by working with them to think laterally about opportunities in the market.

Eva's firm, Mitsubishi UFJ Securities International, is an increasingly significant presence in the banking sector. It's the European capital markets-focused arm of one the largest banking groups in the world - Mitsubishi UFJ Financial Group (MUFG) - and, unlike many investment banks which are downsizing in the wake of continued global economic instability, is currently getting bigger. Says Eva: "Right now it's particularly important to be at the right bank. And as Mitsubishi UFJ is growing, it's an incredible place to be in this climate." Eva's team takes on a couple of graduates every year and there are many other entry-level roles available across the organisation.

Market spread

So as an expert in debt at a well-positioned institution, Eva is an excellent person to explain the economic crisis sweeping across Europe. She says: "Basically, eurozone governments decided a long time ago not to enforce the rules that were set up when the eurozone was formed in relation to how much a government's spending could exceed its income and how much debt a country could take on in relation to its gross domestic product (GDP). Therefore, many European countries have borrowed more than was originally intended by the eurozone's founders. And, when you have too much debt, creditors start asking questions. Now the creditors of eurozone governments have realised that many countries are not going to be able to pay back all the debt they've incurred, which is causing panic."

Eva goes on to explain why financial instability in any particular national market will not stay confined within the borders of the countries concerned: "A lot of the money that was lent to the governments in trouble came from banks all across the EU. And that's why we talk about contagion, which is what makes all of this a really big problem. If Greece defaults tomorrow, banks in many other European countries will find it difficult to do business because of their exposure to Greek government debt. And if Portugal and Ireland default the day after tomorrow, then they'll find it very difficult to do business. A few European banks would then probably become insolvent, which would have all kinds of further effects on many European economies. And the contagion doesn't stop in Europe. For instance, some American parties have bought excessive amounts of European government debt, and many of the larger American banks have sold derivative products relating to it." Derivatives products are used to multiply profits, but also magnify losses caused by failures to repay and so add to the potential consequential problems of sovereign defaults.

Pooling resources

We ask Eva why Greece has suffered the most severe economic problems of all of the eurozone members. Eva first points to the Mediterranean nation's massive levels of public debt. The IMF estimates that Greece's borrowings currently stand at nearly US$400,000 million, an incredible 130 per cent of the nation's GDP (IMF). Eva also points to Greece's reputedly difficult business environment. A large black market economy and widespread tax evasion mean that it's difficult to implement economic reforms here. Does Eva think Greece could leave the eurozone? "Probably not. Right now it looks as though European politicians are keeping the situation under control. But everything is possible! Markets can move very rapidly and situations can escalate very quickly, so there's a risk that politicians won't always be able to manage developments." For now, Eva approves of the approach currently being taken by European politicians; allowing funds from the European Financial Stability Fund, the shared bail-out pool established by eurozone governments last year, to be accessed more easily is a good "interim solution". However, what she sees as the best long term approach for Europe as a whole is to create a core Europe with Germany, France, Italy and a few small countries included (more or less the same countries that created the foundation for the EU in the 1950s) and for these to integrate and issue European Union bonds, pieces of debt sold jointly by all eurozone members.

But what effect do a government's economic difficulties, or even default, have on the citizens of a country? Eva cites also-troubled Portugal as an example: "If Portugal defaults, Portuguese companies will find it very difficult to get any access to money from sources in or outside Europe. In addition, the savings of ordinary Portuguese individuals would be at risk because substantial amounts would be invested in Portuguese sovereign debt, or held in local banks which have invested in Portuguese sovereign debt. But in the medium-to-long term, regardless of whether Portugal remains in the euro or not, Portuguese people should eventually see an improvement in their economic situation."

What about Britain? Obviously the UK is not a eurozone member, but will the economic issues of our nearest neighbours touch us here? Eva thinks that the most noticeable effect will be "low demand for our products and services in Europe, which in turn will affect financial services activity".

All change

We end by coming back to Eva herself. How has the eurozone crisis affected how she goes about her job? "It's had a major impact," says Eva. "There's increased market volatility which has had an impact on our clients, who are therefore retreating to larger companies in particular geographies." What about changes to her own day-to-day role? "My job has changed completely. I used to do mostly straight company analysis, looking at profitability, margins, and so on. But over the last year, I've repeatedly found myself looking at legal textbooks, or waiting for comments from politicians. All our clients are now much more interested in our views on the crisis than on the fundamentals of individual companies. So all analysts across banking and insurance in Europe have had to improve their understanding of macroeconomics!"

How does Eva feels about the way her job has been affected? "It has been challenging, and even frustrating at times. Events and comments that affect what I do can now come at any time and from any direction - and "Europe" doesn't always speak with one voice!" But Eva clearly loves her role in research and tells us that "working in a different way has certainly been interesting!" Our time with Eva is now up and, as she's awaiting the latest announcement from Brussels, we let her go. But we have a sneaking suspicion that Eva can look forward to all things eurozone-related continuing to stay interesting - and continuing to keep her very busy - in the coming months.

Comments