UBS’s financing business might not have the widest scope in the industry these days, nor does the bank top the debt and equity capital markets league tables, but what it does have is expertise that is unusually well tailored to the times. For its skill in responding to its target clients’ needs, and particularly those of financial institutions, it is our pick as western Europe’s best bank for financing.
Debt capital markets issuance from western European borrowers has fallen progressively over the last two years, following the unusual surge of financing needed by governments and corporates in the pandemic years. For this awards period, issuance was at $1.4 trillion, some 31% below the roughly $2 trillion of issuance of April 2020 to April 2021.
Within that $1.4 trillion, corporate issuance was just half what it was in the earlier period. Sovereign, supranational and agency (SSA) volumes fell about 40%. But financial institutions have bucked the trend, in large part driven by continuing regulatory requirements, to rise by 26%.
That move has made the business also much more meaningful in the context of total volumes. SSAs consistently account for about half of issuance, but financial institution activity has increased in importance, doubling to more than 30% of regional volumes in the most recent awards period, compared with 2021.
All of which makes UBS an institution of particular importance for the region’s financing – it consistently dominates the rankings for financial institution issuance. In the most recent period, its market share sits at double that of its closest competitor, at more than 8%.
According to Barry Donlon, UBS’s head of DCM in Europe, Middle East and Africa, part of the bank’s success has been its ability to adapt its approach to the priorities of its clients.
“We have built a big capital advisory franchise, and when banks were focused on restructuring their balance sheets with equity and hybrid securities like additional tier-1, we did well at that,” he says. “But the bank market has moved on and the conversation is now more about new forms of bail-in-able senior debt and liquidity. It is gradually moving up the capital structure.”
At about $250 billion, the additional tier-1 (AT1) segment looks well capitalized. Many institutions are now even looking to tackle excess capital through buybacks and dividends.
Crises have not gone away, however, as the past year has shown, and regulators have these in mind as they seek to ensure sufficient loss-absorbency. But the conversation has moved further up the balance sheet into newer forms of bail-in-able senior debt, instruments that comply with the minimum requirement for own funds and eligible liabilities (MREL). Many institutions, particularly in periphery jurisdictions, have not yet raised enough MREL.
“We have done well in jurisdictions like Greece and Portugal, helping to take banks that are less far along in their MREL journey and getting deals out after market recoveries,” says Donlon.
At the same time, banks have also been making – and will continue to make – large repayments of the EU’s third targeted longer-term refinancing operation, as well as the Bank of England’s similar scheme. More generally, they are also dealing with the pivot from quantitative easing to tightening.
Some asset classes have risen rapidly. Covered bond volumes have more than doubled in two years. Donlon says that one thing that UBS did well was make sure that it had a franchise that was set up to facilitate the change in dynamics. It did more than 100 covered bond, senior preferred and senior non-preferred transactions in Europe.
“Our challenge on the DCM side has been to position the franchise in a way that allowed us to capture covered bond and interest rate advisory business, not just capital trades,” he says.
Our challenge on the DCM side has been to position the franchise in a way that allowed us to capture covered bond and interest rate advisory business, not just capital trades
Barry Donlon
That meant pivoting from a traditional UBS approach. The bank’s capital advisory business was built on the foundations of its historically strong equity franchise, onto which was bolted capital solutions expertise and a liability management team.
Capturing that new focus takes something different – it’s more about having the sales and trading resources and the treasurer relationships and less about winning in the boardroom. It took an expansion of syndicate and sales to make a success of it.
Given the volatility of the awards period, the ability to reopen markets was critical. Just before the current awards period began, the bank had done the first covered bond, first holdco and first AT1 deals after Russia’s invasion of Ukraine. And it followed those up with the first US dollar AT1 and first Swiss franc corporate senior deal.
After the summer, it reopened the euro tier-2, covered, holdco and sterling AT1 markets. More firsts came at the start of 2023 and then again in Swiss francs following the Credit Suisse crisis in March.
That UBS is the leading Swiss franc bank – increasing its market share to 60% this year – might seem unremarkable, but it matters more now that the currency is becoming less of a niche. The bank led no fewer than seven deals for UK banks in the currency.
Although its financial institution DCM franchise has been the standout, UBS is no one-trick pony. Its ECM business does not have the scope it could boast in the first decade of the 2000s, but as industry volumes collapse it looks appropriately sized for the risk appetite of the bank.
Its financial and Swiss credentials have helped it to some of the highest profile transactions in a lean year, with a joint bookrunner role on the £2 billion selldown of shares in London Stock Exchange Group, as well as the SFr830 million ($924 million) sale of Roche stock, for which it was the sole global coordinator.
It leads the Swiss ECM rankings after completing numerous capital raises for its domestic corporate clients. It also featured in equity-linked trades as that market reopened in 2022.
