It has been a difficult year to develop a winning strategy in banking in both Canada and the US. Royal Bank of Canada, for example, announced that it is considering scaling back its US retail franchise, while US banks have had little success in achieving an impact across the border in Canada.
"If you look back to 2004, we had no presence in the US. Today, were a top-10 North American bank with about C$630 billion [$640 billion] in assets, more locations in the US than in Canada, and a branch and store network with tremendous organic growth embedded in it for the future," says Ed Clark, group president and chief executive of TD Bank Group.
TD continues to take market share every year. In 2010, TDs personal and commercial lending grew by more than 11% in Canada, compared with an average of 6% for its Canadian peers. Similarly, in the US, TD grew its loan portfolio by 8%, while US competitors portfolios contracted by 2.4%.
Thanks to a strong balance sheet, TD was able to make several large acquisitions during the crisis. That continued in 2010: in April it purchased the operations of three Florida-based banks from the Federal Deposit Insurance Corporation, while in September the bank acquired The South Financial Group, a mid-market commercial lender with operations in Florida and North and South Carolina. The two transactions resulted in the addition of about 240 branches to TDs footprint.
TD ended 2010 by announcing its intention to acquire Chrysler Financial, one of North Americas largest independent auto lenders. Chrysler Financial, combined with TDs existing auto-lending operations in Canada and the US, creates a top-five bank-owned auto lender in North America. Clark has intimated this year, however, that the acquisition trail will slow.
Becoming bigger does not always equate to becoming better, but TD has managed to maintain a level of service to its clients and employees that is unrivalled. The bank has the longest hours of operation in the US, and last year announced seven-day banking at over 300 of its Canadian branches. The bank is also consistently awarded for being one of the best employers both in Canada and the US.
Level of service, particularly in the US, is key to winning clients, especially after three years of headlines about inappropriate foreclosure documentation, loose mortgage practices and increasing or hidden fees. US retail banking and business clients have had to navigate a minefield when seeking a bank that is large enough to be competitive for their banking needs but offers the comfort and trust that comes with a community bank.
Best bank in the US
Richard Davis, chairman, president and chief executive of US Bancorp, has made it his mission to grow the business slowly. It has avoided business lines that did not seem sustainable, and while it is a prolific acquirer in the US, those acquisitions have been small and strategic. That strategy earned Davis criticism pre-crisis and disappointed some during the crisis who were hoping for large deals, but the banks results have proven the strategy to be correct. Revenue has grown every quarter throughout and the bank has achieved record revenues each of the last five years.
"Weve been fortunate in that we have not had to replace earnings streams that were not sustainable or repeatable. During the recession weve actually been hiring and growing, and are now being welcomed by large corporates that have a better appreciation of soundness of business," says Davis. Deposits increased 11.5% over 2010. Loans have increased 30% since 2007.
Davis says the pieces are all in place for US Bancorp and it will grow deeper, not wider. Those four pieces are: consumer and small-business banking; wholesale banking; payment services; and wealth management and securities services. In the midst of the recession, the bank expanded its corporate banking business, attracting talent from ailing competitors. It has no intention of moving into investment banking or insurance. "We can offer private placements of debt, high-grade bonds and municipal securities. We dont have to take our best customers on the loan side and hand them off to someone else," says Davis.
Deepening services to larger corporates, however, has not detracted from the banks commitment to retail clients. Bancorp cut many of its overdraft fees by more than 70% last year so that they are among the lowest of any bank in the US. The firm has also invested more than $8 billion nationwide through its Community Development Corporation, including investing in a fund that provides financing for the construction of 480 affordable rental-housing units for low-income families and senior citizens in seven communities throughout the US West and Midwest; it manages these for Google. But Davis is not putting all of his eggs in a US retail-banking basket.
Smartly, the firm expanded its US payments franchise to Europe in 2001 and has since extended this to Mexico and Brazil. That geographical diversification of revenue stream, and the presence of a business with sustainable fees but little capital requirement, has earned the bank the highest valuation of the large banks in the US.
Davis is humble, however. "We could not have known when we embarked on that strategy just how important it would be and how capital would become king. It was a smarter idea than we realized," he says.
Bank of America is a force to be reckoned with in the US banking sector, but this year it is its investment banking business with Merrill Lynch that stands out. Mergers are not easily digestible, but BAML is convincing in its portrayal of itself as a fully integrated franchise that can serve more US clients across more business sectors than any other player on Wall Street. No other firm serves clients from middle-market companies to the largest US corporates.
BAML has shown in equity capital markets, debt capital markets and mergers and acquisitions that it understands that a trusted relationship and adding value win mandates not just being big and having breadth. "Clients do not put bundling of products first. They want the best in each product and trustworthy advice," says Purna Saggurti, chairman of global corporate and investment banking.
That means the firm has no qualms in advising clients to appoint additional banks where appropriate rather than demanding every position for itself. In some cases, however, its breadth of product leads it to be in on every part of a deal. In the case of US power firm PPL, BAML was involved in all nine different components of its acquisition of E.Ons UK power network across all asset classes, points out Lisa Carnoy, co-head of global capital markets.
Moving risk to market
In US dollar-denominated debt deals, BAML shares the position of top-ranking bookrunner with JPMorgan and Barclays Capital, and in left-lead role it dominates. The addition of Merrill Lynchs 20,000 financial advisers has given it a distribution arm that no other investment bank can rival and allows the firm to move risk quickly into the market.
As testament to its appointment by clients, not just for lending roles, BAML ranks number one in the US financial institutions group market and, with Barclays Capital, has been a frontrunner in the US-dollar covered bond market. "Lending relationships are the easy part, but introducing clients to new ideas and giving the best advice is where we differentiate ourselves," says Jim Probert, head of Americas investment-grade capital markets. For Ford, for example, BAML served as sole structuring agent on $1.5 billion of Fuel senior notes structured as a blend of asset-backed securities and unsecured debt the first offering of its type.
High yield is also a leading business for BAML; in this area the US investment bank ranks first in the US, with a market share of 21.5% by deals, and is the first choice for inaugural issuers to the high-yield market. The firm has also proved a leader in leveraged-buyout financings, and in payment-in-kind and discount notes, which have attracted a growing appetite from US corporates.
Best equity house in North America
Much ink has been spilled about Brazilian oil company Petrobras $70 billion offering, for example, and the deal was priced in BAMLs office at Bryant Park, New York. So was HCAs $4.3 billion IPO the largest healthcare IPO to date.
In a volatile equity market, it is execution, however, that counts the most. Understanding investor demand is key to this and both BAMLs bookrun IPOs and its follow-ons have priced in a tighter range to initial filing pricing than deals it has not been on. In convertible transactions, BAML has been a leader in telecoms, real-estate, technology, FIG and industrials as it has sought out new investors to meet issuer demand.
In M&A in North America, BAML is a top-four player and this is perhaps the last arm of investment banking that the firm has yet to develop fully, but its role in acquisition finance is formidable. The firm was a bookrunner on 63% of the equity and equity-linked acquisition-connected US transactions priced in the 12-month period from April 2010. It was lead-left bookrunner, for example, on PPLs $2.5 billion follow-on offering in its acquisition of E.Ons UK power network, for which BAML was also an M&A adviser to PPL.
Saggurti points out the firms relevance to M&A clients as a defence adviser, working on the three largest hostile transaction attempts of the past 12 months, including Potash Corporations defence against a hostile bid from BHP Billiton, which was eventually withdrawn due to Canadian regulatory decisions. Paul Donofrio, co-head of global corporate and investment banking, has little concern about BAMLs future standing in US M&A. "To be relevant and profitable in M&A requires scale and we have that," he says.
Best investment bank in Canada
In debt capital markets, however, RBC sweeps the floor in Canada. From the second quarter of last year to the end of March this year, the investment bank had a market share of 27% on Canadian corporate and asset-backed deals, having been on 120 transactions more than double the number of its second-place competitor. In August 2010 and March 2011, RBC was the joint bookrunner on Ford Credit Canadas two single-tranche offerings for C$1.05 billion. In September last year, the firm was the sole bookrunner for Lloyds TSB Banks inaugural maple bond the first maple bond from a UK financial institution in two years. Lloyds returned with RBC as sole bookrunner again in April.
In government deals, RBC was lead-left bookrunner on a C$6.25 billion issue from the Canada Housing Trust, which launched amid political tensions in Africa and the Middle East and the earthquake in Japan.
Finally in M&A, RBC slightly beat BMO in Canadian target deals. The firms global standing gives it an advantage on cross-border deals, and several large transactions of this sort have been announced over the past 12 months. Doug Guzman, head of global investment banking at RBC Capital Markets, says: "As the only Canadian bank with a global capital markets business, were able to leverage our international capabilities to service our clients across regions."
RBC was the only Canadian entity selected to defend Potash against BHP Billitons hostile bid. It also advised the London Stock Exchange on its bid for the TMX Group a bid that has yet to be approved by regulators at time of going press.
Best debt house in North America
By topping Bank of America Merrill Lynch, JPMorgan and Citi, Barclays Capital provides evidence that balance sheet is no longer the sole deciding factor for treasurers looking to raise debt, and it wins this years title of best debt house in North America. BarCap has been on nine of GE Capitals last 10 deals, as well as having been a bookrunner on some of the largest US corporate deals.
BarCaps international clout has also taken the firm to the top of the Yankee bond league tables. In Yankee bank issuance, the firm increased its market share by more than 300% from the first quarter of 2010 to the first quarter of 2011. BarCap went door-to-door to clients to find out how it could be a frontrunner in that business.
"Clients told us they wanted us to trade more of their bonds that we were not bookrunning, so we reshuffled the trading desks and became more active in commercial paper," says Justin DErcole, BarCaps head of IG syndicate for the Americas.
In US dollar-denominated covered bonds, which have surged over the past 12 months as foreign covered-bond issuers look for a new market for investors, BarCap is the number-one bookrunner, jostling with BAML. In ABS, BarCap has had the largest market share for four consecutive years in the US. In the past year BarCap has brought back esoteric ABS for clients such as fast-food chain Sonic and Churchs Chicken, leading the only four whole-business securitizations in the US since the credit crisis. In US government advisory, the firm has been key in the Federal Deposit Insurance Corporations structured sale of guaranteed notes. For the National Credit Union, BarCap was exclusive adviser on its resolution plan for more than $50 billion in distressed assets.
Best M&A house in North America
In dealing with regulatory hurdles and sovereign issues, JPMorgan has carved itself a role as expert. It is adviser to Deutsche Börse in its bid for NYSE Euronext, which is awaiting European regulatory approval. In spite of a counterbid by Nasdaq, Deutsche Börse has not budged on its offer, which analysts say is testament to JPMorgans advice on the deal and insight into the regulatory difficulty that a Nasdaq-NYSE Euronext deal encountered.
Under its North America M&A co-heads Jim Woolery and Chris Ventresca, JPMorgan now has a 30% market share in the region, which it has increased over the past three years. In the first quarter of 2011 alone it advised on 46 deals in the US.
Best risk advisor in North America
In credit, the bank enabled Zions Bank to reduce the regulatory capital risk weight for its collateralized debt obligation to 20% from 455% after its trust-preferred security assets were downgraded, avoiding a forced sale. In the US banking sector, Deutsche has been a vital aid in helping companies dispose of legacy assets through restructuring. It also created the platform to auction off the US Treasurys large warrant positions for US financial institutions.
Deutsche also introduced the first exchange-traded products to give US investors access to country-specific bond-market returns. In March, it launched the first exchange-traded notes based on sovereign bond futures, giving exposure to the US-dollar performance of German, Italian and Japanese government bond futures markets.
As pension funds battle to match assets and liabilities in the US, Deutsche has been pivotal in offering structures to hedge against longevity risk. For BMWs corporate pension plan in the US, Deutsche carried out the largest longevity swap ever executed.
It is not only in hedging that Deutsche Bank excels in advising clients. An early call on the improvement in MBIAs liquidity positions and mortgages resulted in a trade that made $1 billion for the bank and its clients. "We identified early that the risk of default had dropped dramatically for MBIA and advised clients to enter a trade in the front-end CDS, where there was limited downside," says Jeff Mayer, head of CIB North America at Deutsche Bank.
Deutsche Bank also wins this years award for best flow house in North America. In fixed-income and FX trading in the US, the bank has number-one positions, and it competes with Barclays Capital for first and second rankings in block trading.
Indeed, Deutsche executed the largest healthcare block trade on record at $865 million as the left bookrunner on GlaxoSmithKlines disposition in Quest Diagnostics. It also executed a $1 billion total return equity swap for a US pension fund, saving 25 basis points for exposure to global equities. As an equity broker, the firm has also received accolades for achieving the best stock prices for clients. In rates Deutsche ranks first in North America US dollar products in cash and in derivatives.
In innovation Deutsche has always been a leader on Wall Street. It has developed solutions to provide clients with liquidity in reaction to market trends over the past 12 months such as higher gold prices, low yields, rising inflation, bullishness on US equities and sovereign default risk.
Deutsche has also dominated in niche segments such as inflation-linked notes, US inflation derivatives and inflation options. The bank had a market share of 16% in US inflation derivatives in 2010. It was one of two dealers on a $30 billion notional counter-trend trade for a US client to protect its portfolio against inflation, for example. The bank also engineered a series of tradable hybrid, cross-asset class option structures that allowed clients to combine two or more market trend views into a tradable options format.
Best project finance house in North America
Citi has been a dominant force in this alternative-energy sector, and this year wins the accolade of best project finance house in North America. In 2010 the investment bank structured and placed the two largest wind-power projects to date.
Shepherds Flat Wind Project was the first distributed transaction to benefit from an 80% guarantee under the US Department of Energys Financial Institution Partnership Program for conventional renewable technologies. The $1.9 billion project comprised a bond tranche, a conduit tranche, a term bank tranche and letter-of-credit facilities, which Citi joint-led. On the $1.2 billion financing of Terra-Gens Alta Wind Energy Center, Citi was lead-left bookrunner on an integrated leveraged-lease transaction the first of its kind for a greenfield wind-construction financing.
Citi also structured a $40 million financing deal for Solar City in December last year on a residential rooftop solar panel project. "Everyone wants to put solar panels on roofs but, at a cost of $30,000 per roof, it can be difficult for developers to raise the critical mass across thousands of rooftops," says Stuart Murray, Citi project finance director. Citi was able to pool those thousands of rooftop projects in a process akin to a mortgage-backed securitization, which was structured to be tax-efficient to the developer.
The firm has also been prominent in cross-border deals. Citi has placed $600 million of senior secured notes for a coal port terminal in Australia, sponsored by Canadian firm Brookfield Infrastructure Partners, in the US private placement market, and $582 million in financing for an airport in the Bahamas.
Best cash management house in North America
BAML ranks first in the US in product volume for account reconciliation, cheque clearing, controlled disbursement and wholesale lockbox, and is in the top three in purchasing cards, payroll cards, automated clearing house origination, Fedwire transfers and information reporting as well as electronic data interchange-initiated cheque payments and EDI-initiated electronic payments, according to Ernst & Young.
One of BAMLs strengths in winning more market share in the US has been its focus on freeing up working capital. In the case of one US retailer, the bank spent time in 15 different stores across the country analyzing when cash inflows were largest and what levels of cash the retailer should be holding. It identified $200 million in cash across all stores that could be freed up and developed a forecasting tool to determine the denominations of cash each store would need on hand. BAML also has a treasury outsourcing business in Dublin, which offers tax-beneficial end-of-day cash management for middle-market and lower-end clients.
In the public sector, the firm won the mandate to be the prepaid debt card provider for the California Employment Development Department, which has replaced unemployment and disability benefit cheques with a prepaid debt card for some two million claimants.