| Structured credit poll |
| 2008 |
2007 |
Bank |
Score |
| 1 |
2 |
JPMorgan |
299 |
| 2 |
1 |
Goldman Sachs |
205 |
| 3 |
4 |
Deutsche Bank |
169 |
| 4= |
11 |
Royal Bank of Scotland |
138 |
| 4= |
10 |
Citi |
138 |
| Liquidity provision |
| 2008 |
2007 |
Bank |
Score |
| 1 |
2 |
JPMorgan |
247 |
| 2 |
1 |
Goldman Sachs |
195 |
| 3 |
4 |
Deutsche Bank |
150 |
| 4 |
10 |
Barclays Capital |
113 |
| 5 |
6 |
Morgan Stanley |
98 |
| Source: Euromoney |
If you believe history is written by the victors, the next chapter of the structured credit market chronicle will likely be written by JPMorgan. The US investment bank firmly stamped its name on structured credit at its inception. More than a decade on, JPMorgan has emerged as a leading force in the great structured credit clean-up thanks to its ability to reposition its business quickly.
"For clients with structured credit books, the need for liquidity is stronger than ever before. JPMorgan has a strong balance sheet and a clean book, and has avoided many of the pitfalls that have affected many others," says Guy America, European head of credit trading.
Last autumn, when the credit markets continued to slide and it was clear that there was little likelihood of a bounceback, JPMorgan set about changing its structured credit model from one focused on product development and syndication to one set up to address client concerns.
Caution pays off
"It was as much about what we didn’t do in the two to three years prior to the credit crunch that has stood us in good stead with our clients since. For example, we were not overly active in CDOs of ABS, we did not distribute SIV capital notes and we proactively pared back our contingent credit facilities. At the time it was difficult because some questions were asked about our commitment to the business. It turns out that those were very good business decisions," says Ian Slatter, head of European credit sales at JPMorgan in London.
"Now that the market has changed in terms of pushing products, our priorities have changed somewhat," says Peter Meijer, London-based executive director in JPMorgan’s structured credit team. "Our primary aims are to be there for clients, to listen to clients and to provide liquidity. We’re taking on board client concerns and are coming up with solutions accordingly. The resources previously used for innovation of products are now focused on restructuring and finding solutions for clients."
This swift strategy realignment put JPMorgan firmly at the top of Euromoney’s annual poll of the structured credit market. Last year’s winner, Goldman Sachs, also put in a strong showing, placing second. Deutsche Bank, fourth-placed last year, climbed one notch to third. Based on the results, these three banks have emerged as the leading force in the still shaky structured credit markets.
"Either by luck or by wisdom we have come out of the events of the past year fairly well," says Meijer. "We weren’t involved in some of the hardest-hit areas. I think that’s a sign of the strong risk-management culture at the firm and a very strong fundamental understanding of credit."
Restructuring deals
Restructurings have run the gamut from the simple – substituting names in synthetic collateralized debt obligations – to the more complex, such as advising troubled Canadian conduits earlier this year. There has also been plenty to do in asset-backed structures, collateralized loan obligations and other loan deals.
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"The resources previously used for innovation of products are now focused on restructuring and finding solutions for clients"
Peter Meijer, JPMorgan |
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In the midst of the restructuring, those banks that have been least damaged by the sub-prime crisis are attempting to chart their market’s future. "The market will not come back quickly," says Meijer. "There will be fewer players and we’re hopeful our market share will grow as the market consolidates."
Given the amount of structured credit business transacted and the continued deterioration of credit, restructuring old deals will keep bankers busy for some time. That doesn’t mean new product development has halted completely.
"When you’re doing one trade after another in the same area, it’s hard to see what else to do," says Meijer. "Now it’s rewarding to focus on new things."
New ideas
One obvious theme is to look at ways structured credit techniques can be applied to maximizing bank’s capital usage, he says. Product developers are also examining emerging markets, high yield, and insurance and property, for new ideas.
Investment banks also are looking for new clients for structured credit now that many of their usual customers won’t touch their products with a bargepole. Some are tapping up sophisticated private banking clients, offering them simple products such as first-to-default baskets. These structures seek to take advantage of perceived mispricing in the market. The baskets comprise credits with low likelihoods of default, which are trading at wide spreads, because credit on the whole is out of favour. New ideas may present themselves, but it’s unlikely new business will outpace restructuring mandates in the near term.