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Grasso to Rudloff Cite Egyptian Need to Gain Public Confidence in Markets

Six days after Hosni Mubarak ceded control of Egypt to the military, the nation’s financial markets remain in disarray.

The Egyptian Exchange, shut since Jan. 27 after the biggest stock selloff in more than two years, delayed its opening for the fourth time yesterday while the central bank postponed 5.5 billion Egyptian pounds ($936 million) of bill sales. Banks will stay closed for the rest of the week, state-run Nile News television reported. Credit default swaps insuring Egyptian debt against default have climbed every day since the end of Mubarak’s 30-year rule on Feb. 11.

While the army calmed the streets of Cairo following three weeks of demonstrations, regulators haven’t announced plans to restart the most-populous Arab nation’s financial system. Military, capital-market and business leaders should hold a public meeting to signal confidence in the economy and outline how they will open markets, said Richard Grasso, who ran the New York Stock Exchange during the 1998 collapse of Long Term Capital Management and the Sept. 11, 2001, terrorist attacks.

“The initiative should have both private sector and military figures publicly supporting the resumption,” Grasso, chairman of the NYSE from 1995 to 2003, said in an e-mailed response to questions. “Most importantly, projecting a shared air of confidence will permit a resumption of capital-markets activities.”

Photographer: Daniel Acker/Bloomberg

Richard "Dick" Grasso, former chairman and chief executive officer of the New York Stock Exchange. Close

Richard "Dick" Grasso, former chairman and chief executive officer of the New York Stock Exchange.

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Photographer: Daniel Acker/Bloomberg

Richard "Dick" Grasso, former chairman and chief executive officer of the New York Stock Exchange.

‘No Credibility’

Egyptian securities traded on foreign exchanges retreated yesterday as the bourse said it will remain shut until at least 48 hours after the nation’s banks open. The exchange isn’t ruling out canceling transactions on Jan. 27 that sent the benchmark EGX 30 Index to an 11 percent drop, though it has no legal grounds to annul the trades, Chairman Khaled Seyam said in an interview. The decline was the most since Oct. 7, 2008.

Egyptian authorities “should explain to businesses, political and economic leaders a sustainable fiscal and monetary program,” Roque Fernandez, who ran Argentina’s central bank from 1990 to 1996 when the country recovered from hyperinflation and established an exchange-rate regime that pegged the peso to the dollar, said in a telephone interview from Buenos Aires. “Markets need to have information, if they don’t have it, then there’s no credibility.”

Egypt may struggle to lure big investors until there’s more clarity on the economic and foreign policies of the new government, said Hans-Joerg Rudloff, the chairman of Barclays Plc’s investment-banking unit.

GDRs Sink

Egypt’s military has vowed a transition to democracy and indicated the country will honor its peace treaty with Israel. The Mubarak-appointed government is now running the country with military oversight.

“You are not going to make a big, half a billion dollar investment before you know which way the country will swing,” Rudloff, who pioneered the Eurobond market in the 1980s, said in an interview in London yesterday.

Ziad Bahaa El-Din, head of the Egyptian Financial Services Supervisory Authority, and Hisham Ramez, deputy governor of the central bank, didn’t respond to calls and text messages seeking comment.

Global depositary receipts of Orascom Construction Industries, Egypt’s biggest publicly traded builder, and Commercial International Bank Egypt SAE, the country’s largest publicly traded bank, both slid more than 4 percent in London yesterday. Orascom Construction declined 0.1 percent today, while Commercial International gained 0.6 percent.

Bonds Retreat

The Market Vectors Egypt Index ETF, a U.S.-listed exchange- traded fund that holds Egyptian shares, fell 0.4 percent in New York today. The fund has gained 13 percent since Jan. 27.

Yields on Egypt’s 10-year dollar bonds were little changed at 6.62 percent today. Five-year credit default swaps increased 10 basis points to 350, according to data provider CMA in London. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

The government will auction 5.5 billion Egyptian pounds in 182- and 364-day bills on Feb. 21 instead of today, according to the Finance Ministry’s website. Auctions of 91- and 273-day bills will be held as scheduled on Feb. 20 in a bid to raise 4.5 billion pounds, the ministry said.

Egypt has an advantage over some other nations facing crises because it’s an important U.S. and European ally in the Middle East and controls the Suez canal, used to carry about 8 percent of global seaborne trade, according to Zelia Cardoso, Brazil’s finance minister when inflation hit a record high of 6,821 percent between 1990 and 1991.

IMF Involvement

That makes it more likely international institutions will offer help in reviving Egypt’s markets and economy, she said.

“If the market bets against you, it’s very hard to deal with,” Cardoso, who froze Brazilians’ savings in an attempt to tackle inflation, said in a phone interview from New York. “That was the case with us. I don’t think it will be the case with Egypt.”

The International Monetary Fund, the Washington-based lender with 187 member nations, has shared information with Egyptian authorities on how other countries opened banks following crises, Masood Ahmed, the director of the IMF’s Middle East and Central Asia department, told reporters in Washington yesterday. Ahmed didn’t mention any specific countries and said the IMF doesn’t currently have a team in Egypt.

‘Thought Leaders’

“The international community has to say that this is an internal issue but that from a financial side, they will take all measures that are needed to prevent an external speculative attack against the currency,” Mario Blejer, who ran Argentina’s central bank from January to June of 2002, when the country devalued the currency in the wake of the government’s $95 billion default, said in a telephone interview from Washington.

The Egyptian pound traded near a six-year low of 5.878 per dollar on Feb. 14, according to data compiled by Bloomberg.

Grasso, along with then Treasury Secretary Paul O’Neill and New York Mayor Rudolph Giuliani, rang the opening bell at the NYSE on Sept. 17, 2001, six days after terrorists flew planes into the World Trade Center in lower Manhattan. Federal Reserve policy makers led by Alan Greenspan lowered their benchmark interest rate a half percentage point the same day to shore up investor and consumer confidence.

While the Dow Jones Industrial Average tumbled as much as 14 percent in the first five trading days after the exchange opened, it recouped its losses within two months.

The moves helped to “calm fears” among investors, Grasso said. “The depth of decline and speed of recovery was heavily influenced by the demonstration of public confidence between political, business, academic, investor and thought leaders.”

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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