One of the most hotly contested markets over the past 12 year has been asset-backed securities, with five institutions that can stake a legitimate claim to being the best. Citigroup, even without counting self-issuance for its credit card business, has over the past three years forged a formidable operation now integrated all the way from commercial paper conduits through to true-sale term issuance.
Lehman, in the US at least, puts in a stunning performance for a firm lacking balance sheet and internal clients. The new JPMorgan, if merger issues don’t detract, will be a new global force to be reckoned with.
So might Deutsche Bank, which has been steadily moving up the European rankings in recent years, and which within a year went from nowhere to the US top five after poaching the vast bulk of the CSFB team last year.
But the winner this year, and for the second time running, is the bank that lost the team to Deutsche: Credit Suisse First Boston. It wins for managing not just to retain its league table rankings, but also for providing what is the broadest franchise in terms of both products and geographic reach.
The latter is crucial, explains Joe Donovan, co-head of asset finance for the Americas: “Whether for trading or underwriting, issuers want us to have a solid presence in all three markets because, with a couple of exceptions, issuers of securitized products are extremely basis-point sensitive.”
While many of its competitors are know for specialising in one or two areas of the asset-backed market, CSFB claims to be a leading player in most of major sub-sectors, which therefore avoids too many quiet periods if one particular sub-sector falls out of favour. “You can’t base a business on credit cards and auto deals,” says Donovan.
Those are also the parts of the market that are better known, in which there are more competitors, and therefore for which the fees are lower. Credit card deals might bring in 30 basis points, autos under 20bp. CSFB is a major player in these markets, but is also in the higher-margin deals such as home equity securitizations, which bring in between 40bp and 75bp, and pooled aircraft deals, which generate over 1% in fees.
This breadth is also clear in the firm’s global distribution and corporate relationships. These are qualities that Maarten Stegwee, head of the firm’s European operations, mentions were instrumental in attracting him and his team a year go from BNP Paribas.
It is also ahead in terms of organizational structure, in part no doubt because the team was brought in to operate as CSFB wanted. The previous heads in the US, Jorge Calderon and Phil Weingord, operated more of a silo, whereas new head Donovan, who joined from Prudential but had worked at CSFB in the mid-1990s, reports directly to the global head of debt capital markets, John Walsh.
That isn’t so unusual, says Donovan, “but to have all the different asset-backed products within one group is”.
Although the group continues to do its fair share of innovative deals – it’s also one of those at the forefront of developing a market for collateralized debt obligations using asset-backed securities – Donovan says that pure structuring itself is no longer the differentiator. “We used to market ourselves based on the ability to set up complex structures. But now those structures are better known, the size of deals being done is increasing, and complexity in itself won’t sell a $1.5 billion deal.”
The key now, he says, is to be able to provide liquidity, and to do that more effectively head of trading Greg Richter has been given double the amount of capital to use to trade ABS paper.
The question for the next year is whether CSFB can maintain the pace with so many competitors hot on its heels.
