Banks urged to cooperate on eurozone -Rudloff

(Repeats story from Friday with new headline and distribution, no changes to text)

By Chris Spink

LONDON, May 23 (IFR) - Bulge-bracket banks should collaborate more to come up with innovative and lasting solutions to the eurozone's ongoing debt problems, according to a senior banker considered the father of the eurobond market.

Hans-Joerg Rudloff, chairman of Barclays Capital for 16 years until 2014 and the former chairman and CEO of Credit Suisse, said the world's major financial institutions in recent years have too frequently acted in their own interests rather than what might be best for markets overall.

"I consider the unwillingness of institutions to take collective responsibility as a big risk to market-oriented solutions," Rudloff told IFR last week.

He was speaking just days before a deadline for Greece to negotiate a deal with its creditors, the International Monetary Fund and eurozone governments, about releasing the next tranche of its current 86bn bailout - the third programme since May 2010. The parties want to conclude the discussions by May 24.

Rudloff contrasted what had happened in the eurozone since the financial crisis of October 2008 with the market solutions - principally US Treasury-backed Brady (NYSE: BRC - news) bonds - that had eventually been used to break the Latin American debt crisis of the 1980s.

Then, regulators worked in tandem with national authorities and banks for a comprehensive solution that settled the markets, after Mexico's default in August 1982. Those losses could have inflicted catastrophic wounds on the world's banks.

But regulators granted leniency to the banks, which then got together to work out their problems before a final solution was found by US Treasury secretary Nicholas Brady for the banks' Latin American debts to be swapped for sovereign bonds backed by the US government.

"The regulator allowed banks to take writedowns on South American debts over a number of years, which softened the impact on the banking system," said Rudloff, now chairman of Swiss investor Marcuard Holding.

"Acting in the collective interest of the financial markets, the bigger banks bought out many of the overall 600 creditors and shouldered the losses. Obviously there was no love lost but [this was] understood to be necessary and an act of responsibility for the overall financial system."

But similar approaches have not been taken in recent years regarding the ongoing eurozone debt crisis. "Contrary to the 1980s, the willingness to take overall responsibility - and close cooperation between governments, regulators and banks - is clearly missing," he said.

SELFISH INTERESTS

Rudloff said financial institutions are no longer involved enough to bring about a neat mechanism to restructure the debt, then move the situation forward and restore market confidence.

"Sadly, the institutional framework has failed in their task with Greece and the wider eurozone debt problem, and the financial sector has been less than helpful, and was divided or pursuing single interests instead of being part of the solution."

Rudloff is held in high regard after a near 50-year career in the City. Before helping to build up Barclays (LSE: BARC.L - news) ' powerful debt trading and investment bank alongside Bob Diamond, he had headed Credit Suisse (LSE: 0QP5.L - news) from 1989 to 1994. That followed a spell running investment banking at Credit Suisse First Boston, where he pioneered the expansion of the Eurobond market during the 1980s.

Banks' lack of involvement is already partly responsible for the current impasse between Greece's increasingly radical government and its unimaginative creditors, Rudloff said, adding that a lack of collective responsibility could lead to even greater dangers.

"Inevitably, such a situation would end with the very populist political class of today to take control and forcibly restructure the ever-growing European debts," he told IFR.

"It (Other OTC: ITGL - news) is therefore my opinion that it is up to the market to raise its voice and advocate a restructuring in an orderly fashion which considers the interests of creditors and debtors alike."

Such a more fundamental move would also stop debtors being swayed by hedge funds.

"We certainly should stop taking into account the selfish interests of small financial organisations who try to make extraordinary gains, and worse, prevent orderly restructuring, throwing entire countries into misery," he said.

The most notable example has been Argentina, where so-called vulture funds, led by Elliott Management, succeeded in getting paid far more for their un-exchanged bonds than those that saw their bonds restructured savagely in 2005 and 2010.

Rudloff said such players should not be called vultures. "It's the wrong expression. They call themselves vulture funds but vultures in nature clean things up and do not prevent the clean-up of the mess (Other OTC: UBGXF - news) ."