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| © 2017 Euromoney |
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CanadaBest bank: TD Bank
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A seventh year of record earnings in the fiscal period 2016 – and a first half of 2017 that promises another blockbuster year – saw TD Bank prove yet again that it is the franchise to beat in Canada. The firm’s unrivalled breadth and depth secure it Euromoney’s best bank in Canada award for another year.
CEO Bharat Masrani, who only assumed the top job in 2015, was characteristically understated in his assessment of the bank’s most recent two quarterly results, declaring himself “pleased” with the firm’s 14% year-on-year rise in earnings in the first quarter and noting that “all of our business segments performed well” in the second quarter – which saw an even more remarkable 22% rise.
Masrani has certainly cut costs in the last two years, and the benefits of that prudence are likely to become more evident as Canada’s banking sector is buffeted by the headwinds predicted by many analysts.
Private sector debt-to-GDP continues to rise, hitting 185% at the end of 2016. An explosion in house prices and worries over a mortgage bubble have prompted government moves to curb the exuberance. And the country’s key sectors of resources and energy have endured torrid times.
In May 2017, Moody’s downgraded by one notch its baseline credit assessments, long-term ratings and counterparty risk assessments (CRAs) of six Canadian banks, with the exception of TD’s CRA, which it affirmed. Of the six, TD remains the one with a double-A rating. And so far, TD is showing little sign of those headwinds hitting its performance, despite the fact that it is the most reliant of all its domestic peers on retail and commercial business. Its provisions in its Canadian and US retail businesses have ticked up slightly in the first half of fiscal 2017, but have fallen at group level.
It is still building across the border in the US, continuing a theme it has pursued for some time. In 2016, it announced it would acquire Scottrade Bank, a St Louis-based federal savings bank. Subsidiary TD Securities completed the acquisition of US broker-dealer Albert Fried & Company in January 2017.
The latter move will help to bolster the firm’s investment bank capabilities south of the border, but it is already an increasingly strong rival to RBC Capital Markets in its home market. It lags in M&A advisory, but vies with its peer for top place in equity capital markets and pushes it hard in debt capital markets, with strong showings across investment grade, high yield, project finance and Canadian dollar, or maple, bonds.
Now, more than ever, banks are aware of their social responsibilities. For TD Bank this comes pretty naturally – it has long made a priority of such work, with community service and environmental initiatives throughout the organization. The last year has been no exception, as demonstrated by its mobilization of staff and supplies to aid the residents of Fort McMurray, Alberta, in the wake of wildfire devastation in May 2016.
Promoting financial inclusion is another priority, executed through the bank’s TD Helps service that differentiates itself by going beyond the provision of simple FAQs by offering personal responses to questions in an online forum. Its TD MySpend digital offering, which launched in June 2016, is already being used by more than 850,000 customers.
The bank is also increasingly involved in clients’ non-financial lives. Its TD for Me digital concierge tells them about offers and events near them. It is not just about having fun, however. A client visiting a real estate development in a TD for Me zone could find a notification popping up on their phone that puts them in touch with a mortgage adviser. This kind of push can go two ways with clients, but for the moment it looks like TD Bank is getting the balance just right.
Worsening conditions in the energy and commodity sectors were not enough to unsettle RBC Capital Markets in its continued dominance of the Canadian investment banking landscape, for which it again wins Euromoney’s best investment bank in Canada award.
Cross-border work continues to be a big theme, with highlights including advising Enbridge on its $43.4 billion merger with Spectra Energy of the US, the largest ever acquisition by a Canadian firm, completed in March 2017. Smaller, but arguably more eye-catching for the way in which it showcased the bank’s ability to act across asset classes when needed, was its financing work for the $13 billion acquisition of Columbia Pipeline Group by TransCanada Pipelines.
That mandate had already seen it act as lead left bookrunner on a $4.4 billion offer of subscription receipts by TransCanada in the first quarter of 2016, but it followed that up later in the year with a $3.5 billion common share offering alongside C$1 billion ($757 million) of preferred – the biggest preferred deal in the country in 2016.
RBC might not top the M&A rankings in Canada by the value of transactions – there are a number of formidable global franchises competing in that market, particularly in cross-border work. But not only is it the top-ranked Canadian adviser, it is also the firm that advises on the biggest number of deals by far, with 43 for the period. It completed 50% more transactions than its rivals TD Securities and BMO Capital Markets and more than double the number completed by the top global houses.
The franchise’s momentum looks good for the future too – it has been advising Cenovus Energy on buying out ConocoPhillips’ 50% stake in the FCCL Partnership, in what looks set to be the biggest oil and gas asset acquisition in North America when it closes.
Cenovus has already given it a large completed mandate in the awards period in ECM, however, with RBC acting as lead left on a C$3 billion share sale in March 2017. This was the largest bought deal treasury offering for a North American oil and gas company and the fifth largest Canadian bought deal. The bank leveraged its strong institutional relationships to wall-cross key potential investors and ensure strong demand.
Deals like this helped RBC to a 16% market share in ECM, but smaller deals were no less appealing, including the bank’s bookrunner role on the C$144 million IPO of fast food franchise Freshii, the first IPO of 2017 on the Toronto Stock Exchange. Demand drove the offer to price at the high end of a range that had already been increased.
Competitor TD Securities is running neck and neck with RBC in ECM, but in debt capital markets RBC is still ahead, with a 15% market share to TD’s 13%. Its credentials include a host of landmark deals, including acting as global coordinator for the roughly C$1 billion US and Canadian dollar offering by triple-B rated Telus, where it was the only Canadian bank on the top line – and was also the sole execution agent for the related swap.
RBC has maintained its hold on investment banking in Canada for many years, but it cannot afford to rest on its laurels and it will not be immune from the tougher times that many predict for the Canadian economy next year. In TD Securities, it has an increasingly formidable rival and one that – if it closed the gap in M&A advisory in particular – could unseat it at the top.
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United StatesBest bank: Bank of America
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Years of cutting costs, simplifying structures, settling litigation and plugging holes in its coverage have brought one bank to the position where it is now firing on all cylinders across pretty much all of its US business portfolio. ‘Responsible growth’ is the guiding mantra for Bank of America chairman and CEO Brian Moynihan, and his success in putting those words into practice is why his firm is Euromoney’s best bank in the US.
Moynihan might not be the flashiest of bank chiefs, but he knows his bank and he knows what clients in its home market want from it. His focus on building up the firm’s core middle-market franchise has borne fruit – not just in increased business loans but also on coverage more broadly. He drove the creation of deeper regional structures within the US, led by ‘market presidents’ who take personal responsibility for coordinating the bank’s activities across the country.
Costs have been cut across the group with an extraordinary zeal – the fourth quarter of 2016 marked the 20th consecutive quarter of year-on-year lower operating expenses. Since hitting a peak in 2011, the bank has cut expenses by 29%.
It has been a tough journey for Moynihan, a Bostonian who is not part of the North Carolina set that had traditionally run the firm. His priority when taking the top job in 2010 was to stabilize the company – partly with job cuts that continue to this day. The result is a bank that is now better placed to serve its home market than it has ever been.
In investment banking and capital markets – the businesses that sit in Global Corporate and Investment Banking under Christian Meissner – the bank is also now a top-tier franchise, having integrated Merrill Lynch, which it acquired during the financial crisis. It ranks third in M&A and equity capital markets in the region for the period under review and is top in debt capital markets.
Its strategy for banking its US corporate clients is top-notch. The bank does not try to be all things to all people: internationally it is unashamedly selective about its corporate client base. But a key plank of its strategy is its ability to leverage its multi-geography product presence to follow its US client subsidiaries wherever they choose to do business.
Underpinning its approach to corporate clients is also the bank’s focus on supporting them through their life cycle. Its thousands of smaller clients are not neglected – a fact that perhaps reflects the legacy of Moynihan’s time running consumer and small business banking. Clients are shepherded from startup to capital markets by an enviable business and commercial banking franchise that clients cannot praise enough. (The bank also wins our award for North America’s best bank for small and medium-sized enterprises.)
The bank is no slouch when it comes to adoption of new digital offerings. BofA was among the first to roll out Zelle, a new person-to-person payment solution that is being gradually incorporated by a clutch of banks into their online banking apps. Its launch in the first quarter of this year helped BofA see a 25% increase in payments sent by customers through the app, to $8 billion.
It has also worked on proprietary initiatives, including the launch this year of Merrill Edge Guided Investing, an online investment advisory platform that looks to differentiate itself from traditional robo-advisers by the close involvement in asset allocation strategy of the firm’s chief investment office.
Branch presence has not been overlooked, still critically important for the 800,000 customers who use such facilities every day. The bank may have been cutting jobs, but it has also been building new financial centres, often leveraging on an existing global banking or wealth management presence: the folk of Denver, Minneapolis and Indianapolis are the latest to benefit.
Whatever clients need to do, it is a fair bet that Morgan Stanley can help them do it. The firm’s business this year in North America was no exception, and while from a league table perspective it is in M&A advisory that Morgan Stanley truly excels, its innovation and skill in all areas make it our choice for best investment bank in the US.
Morgan Stanley likes uncertain markets more than some – it reckons volatile conditions are when it can best show its prowess. Nowhere was this shown better than in the unregistered block trade that the bank executed on behalf of Abbott Laboratories, which wanted to sell 44 million shares of Mylan in what was the second largest unregistered block ever.
The timing was tough, the markets were jittery ahead of a potential House of Representatives vote on the repeal of the Affordable Care Act, but the $1.88 billion monetization was successfully wrapped up by Morgan Stanley in a sole broker-dealer role.
Other highlights in ECM include its lead left role on the $3.9 billion IPO of Snap, leveraging the firm’s enviable technology sector franchise. Morgan Stanley has long had expertise in this area and it secured a substantially bigger underwriting position on the deal than any other firm on the trade.
The quality of its institutional reach was demonstrated by a $2.2 billion follow-on offering for The Williams Companies, with the firm wall-crossing more than 20 accounts on the day of the deal and enabling the completion of a complex restructuring of the issuer’s relationship with Williams Partners, its consolidated master limited partnership.
In DCM, the firm’s emphasis is on coming up with nimble strategies that make the best use of its wide distribution reach – both institutional and retail.
It was on the key investment-grade deals of the year, including AT&T’s $10 billion six-tranche bond that attracted orders of $27 billion and Abbott’s own $15.1 billion six-trancher that capped a sequence that has seen the firm act as active bookrunner on all of the borrower’s financings.
It also helped non-US corporates tap dollars, acting as active bookrunner on the debut bond for Shire plc, a $12.1 billion four-tranche deal that was the fifth largest European corporate bond deal at the time. The deal was to take out a bridge for the company’s acquisition of Baxalta, for which Morgan Stanley advised Shire as well as part-underwriting the bridge and acting as Shire’s corporate broker.
It was in the non-investment grade market that the firm had one of its most notable achievements, however. The awards period saw Morgan Stanley work on its largest ever lead left term loan B, a $5.5 billion loan for Avolon to support its acquisition of CIT Commercial Air. The firm was also joint global coordinator and joint physical bookrunner for the borrower’s $3 billion of senior notes.
Behind much of the bank’s capital markets work lies its storied M&A advisory franchise – it considers its entire investment banking offering to be advisory-led. Recent years have seen it develop an area of increasing importance – defence advisory, against both rival corporates and activist investors. A notable mandate in the awards period was the bank’s successful defence of Unilever against an unsolicited offer from Kraft Heinz. It also secured a vastly improved offer for Axiall from Westlake Chemical, which upped its initial bid by 65% before the initially hostile offer was agreed.
