If the award for best short-term debt house was given on the basis of strength in the ECP and EMTN market, Deutsche Bank would come out top, although in Europe, Citigroup gives Deutsche a run for its money. But Deutsche does not have the same dominance in the far larger US money markets, or the global strength in origination and trading and reputation for product innovation that Goldman Sachs has.
The fact that the bank has over $200 billion outstanding in the CP market globally, despite the contraction of the USCP market in 2002 and 2003, where it is the top- ranked dealer and arranger, is testament to the bank’s global might. But as members of the Goldman team are quick to point out, CP is now only one part of the short-term debt story, which they now define as CP, MTNs or more structured products of three years’ maturity and under. “The question is how can I put a platform in place that gives me the issuer the broadest access to investors globally?” says John Delaney, head of European money markets.
The two-tranche deal Goldman sole lead managed for BP Capital in February is a good example of the broader scope of short-term debt products. One tranche was a one-year note targeted at money-market investors, the other a 3.25 year note targeted at traditional retail fixed-rate investors.
In the secondary market, its leading position has been bolstered by the fact that the Goldman Sachs money-market desks now take over from the fixed-income syndicate desks trading responsibility for the new-issue and secondary trading of securities up to three years .
Many issuers are either looking for funding diversification or need to exit the CP markets in part or altogether. At the same time, in a low-yield environment, money-market funds are looking for enhanced yield in products that still match their investment criteria at a time when the overall paper supply is falling. “Money is going into enhanced-return bond funds in the US at a level of $100 million a week and is looking for new product,” says Scott Barringer, head of European money markets.
In this environment, the need to come up with new product ideas is more important than ever. As Robert Wall, managing director, fixed income, currencies and commodities and head of US trading, points out: “We’d be run over flat if we were just trying to defend our position, you have to recognize trends when they begin.”
As part of this effort, Goldman has promoted such products as one-year flexible notes, where the investor can switch from a fixed to a floating coupon; extendable MTNs; prime-rate floating-rate notes, where investors choose the prime index from which to calculate the interest on their notes; whole-loan repo and cancellable repo. Goldman was the first to introduce whole-loan repo in Europe in March 2002, where pools of loans are used as collateral for investors’ cash investments. “We’re not a loan house, so there are other banks who would have been more obvious to do it, but we were the first nevertheless,” says Barringer.
When it comes to facilitating regulatory change and promoting the efficiency of the market, Goldman has also been active in the past 12 months. The bank’s investor marketing group, which markets new credits to investors, has helped issuers and investors overcome hurdles such as the FASB’s new accounting standard Fin 46 governing the use of the asset-backed commercial paper market. And in Europe this March, Goldman launched the first same-day-settling ECP note for Unilever.
