World’s best bank for financial institutions 2018: Morgan Stanley

Awards for Excellence 2018

Few sectors have as diverse a range of requirements as financial institutions. Clients face vastly different challenges worldwide, and it is a rare financial institutions group (FIG) franchise that can rise to all of them. In 2018, that franchise belonged to Morgan Stanley.

Ask any FIG banker what the main market theme of the last 12 months has been and you will probably get a different answer. The advance of fintech, deleveraging, recapitalization, consolidation? Depending on the client, it could be any of them – so as a firm you had better to able to deliver, on them all.

“We have a global reach and focus and a leading position in cross-border transactions,” says John Esposito, global co-head of FIG at Morgan Stanley. “We have really tried to break down silos and have global coverage teams. We are bringing in people to talk about balance sheet and capital holistically.”

“We have developed a set of lead capabilities that other banks don’t have,” adds global co-head William Chalmers. “This involves a huge amount of collaboration between investment banking and capital markets. This has been a hallmark of the practice.”

In the US, consolidation and rationalization in the insurance sector was a dominant theme over the year as firms continue to shed their non-core variable annuity liabilities. Morgan Stanley was at the forefront of this, acting as financial adviser to MetLife on its separation of Brighthouse Financial.

This simplification strategy saw the firm carve out a business that was non-core in a complex, multi-year process. The bank also advised on Brighthouse’s $3 billion IPO in June. The spinoff was a crucial step in MetLife’s legal battle to lose its ‘systemically important financial institution’ designation, which it won in January this year. Morgan Stanley also acted as financial adviser to XL in its $15.3 billion sale to French insurer Axa, which is repositioning $15 billion of capital into property and casualty insurance.

John Esposito

It was Morgan Stanley’s work in Europe that really set it apart from the competition this year. In the UK, the bank was sole financial adviser for UK Asset Resolution in its sale of a £5.3 billion UK mortgage portfolio to a Barclays-led consortium. In August, Morgan Stanley was also sole adviser to Santander in the disposal to Blackstone of the €30 billion of non-performing assets that it took on as part of its acquisition of Banco Popular. This was the largest FIG M&A deal in Spain in the last 15 years.

“In the last 12 months, our work on NPLs has been unique among all investment banks,” says Guillaume Gabaix, co-head of EMEA FIG at the bank. Morgan Stanley set up a dedicated NPL group five years ago, a move that has proved prescient as European banks continue to offload assets. The firm has sold €18 billion of NPLs for UniCredit.

It applied this asset sales expertise in the US in May this year with the sale of a $17 billion portfolio of mortgages by Capital One to DLJ Mortgage Capital, a subsidiary of Credit Suisse.

“We believe the $17 billion Capital One mortgage sale exceeded client expectations in terms of the returns achieved,” says Chalmers. “This was the export of loan expertise developed in Europe to a situation in the US at Capital One.”

The recapitalizations of UniCredit and Deutsche Bank set the tone in Europe in 2017, and Morgan Stanley was the only bank to lead on every capital raise during that period. It subsequently worked on both the Santander €7.1 billion capital raise and the Credit Suisse SFr4.1 billion ($4.1 billion) deal. The Santander deal demanded an integrated approach as the Spanish bank was raising equity and de-risking its balance sheet at the same time.

“The burden of proof with investors in these rights issues is much higher than it was immediately post-crisis,” says Gabaix. “We have to prove that the marks of value for the NPLs were not accounting marks – they are the marks of sophisticated investors. There needed to be an extra layer of comfort.”

Morgan Stanley’s FIG team has leveraged its strong tech franchise to great effect over the last year. “We have far more frequent interactions with the tech team,” says Chalmers, and tech is a regular part of all dialogue with clients.

“You need to be able to think ahead for clients and see the threats to their business models,” says Grant Gregory, head of the North America bank group. “This is where you add the most value to clients.”

Key deals, such as Vantiv’s $1.2 billion acquisition of Worldpay, on which Morgan Stanley was the lead left on the $9.3 billion financing package, illustrate the pace of change in the sector. The bank was also lead adviser to Synchrony in its acquisition of $5.8 billion of receivables from PayPal’s US consumer portfolio. The deal, which diversified the business and brought in a global partner, saw the stocks of both companies rise 4% when it was announced.

Having previously worked on the IPOs for Lending Club (where former chief executive John Mack was a board member) and On Deck in 2014, Morgan Stanley is now leading the IPO for the UK’s Funding Circle. The bank was also an active bookrunner on point-of-sale technology company GreenSky’s IPO in May.