Regional Awards for Excellence 2011: Western Europe
If not in crisis, much of Europe’s banking sector remains at least on the verge of a collective nervous breakdown. Without the support of the European Central Bank, many banks would have been brought down by a funding or liquidity shock months ago. Regulatory uncertainty continues to stalk the sector. And the biggest worry of all, banks’ exposure to European sovereign bonds, notably in the southern European countries, grows each day as Greece staggers towards what seems like an inevitable restructuring.
Volumes in BNPP’s domestic networks of France, Italy, Belgium and Luxembourg rose, by 8.5% in deposits and 3.9% in loans. Deposits jumped more than 10% in French retail banking, while delivering a 14.2% rise in pre-tax income; Italian operation BNL’s pre-tax income jumped 10.6%.
BNP Paribas has benefited from its strong deposit base and its sound credit position throughout the financial crisis, and by the end of the first quarter of 2011 it had completed 60% of its medium-term to long-term financing needs for the full year. Its core tier 1 ratio, at 9.5%, is relatively high for European retail banks, and management has made it clear that it expects to be able to meet further capital needs required by Basle III organically.
The cloud on BNPP’s horizon is its exposure to eurozone debt. At the last count its holdings of Greek sovereign debt amounted to €5 billion. The rating agencies are threatening to cut into its funding advantage.
And BNP Paribas is also faced with a changing of the guard at the top of its business. Long-time chairman Michel Pébereau is to retire. Chief executive Baudouin Prot assumes his role. Retail bank chief Jean-Laurent Bonnafé takes the chief executive position. It is one of the smoothest management transitions you could wish for. The bank as a whole will hope it can negotiate the minefield of the eurozone debt crisis in similar fashion.
Deutsche Bank leads the league tables in European investment banking, taking advantage of its natural strengths in its home market and leaving much of the competition in its wake, although JPMorgan runs the German bank reasonably close across DCM, ECM and M&A.
But it is a US firm under pressure from politicians, regulators and the media in its home market that deserves the most credit for its performance in Europe over the past 12 months.
Best investment bank
In equities, Goldman ranked in the top three of all three equity products in Europe: first for ABOs, second for IPOs and third for rights issues. In a very tough market, only 30% of its deals were pulled – better than its nearest rival JPMorgan (38%).
In debt, Goldman is a relatively small volume player, but it led the way in the European high-yield market, with a 12% market share, and topped the rankings for FIG investment-grade deals.
Best equity house
The equity capital markets have become much more competitive, as balance sheet strength and underwriting capacity have become less of a differentiator, and bookbuilt deals, ranging from block trades executed in a day or two to IPOs executed over a number of weeks, have returned to prominence.
Although JPMorgan dominated the primary market rankings in 2009/10 with a 15% market share, that has halved in the most recent period. Deutsche leads the rankings with a 9.5% market share, marginally ahead of that perennial powerhouse in equity capital markets in good years and bad, Goldman Sachs.
Deutsche has clearly benefited from the decision in 2009 to boost its financial institutions group as banks have continued to issue large amounts of equity. Its share in this sector has risen sharply. It has also been helped by the prominence of German issuers and led key deals including Porsche’s €5 billion capital raising in March 2011, comprising ordinary and preference shares and the largest deal for decades in the European automotive sector as well as being sole global coordinator on Volkswagen’s €4.2 billion complex capital raising in April 2010, which comprised a pre-placement of ex-rights shares to private and institutional investors and a subsequent rights offering to free-float investors.
In order to be successful, banks had to be omnipresent. Deutsche has led deals for issuers from 11 European countries and leapt up the league tables as a bookrunner to French and UK issuers.
Rivals point to a number of pulled IPOs on which it was the lead bank. But half the IPOs in Europe have been pulled this year and almost all banks have some blots on their copybooks.
The bank itself argues that there is no better indicator of client satisfaction than repeat business and points to its success in winning sell-downs on a sole bookrunner basis following IPOs as an endorsement of its execution capabilities. On both the €668 million secondary block in Brenntag and €413 million secondary block in Kabel Deutschland, Deutsche Bank was awarded the sole bookrunner mandate after having being one of four bookrunners on the IPOs earlier in the year.
The clear implication is that Deutsche Bank distinguished itself on order generation during the IPO and in subsequent aftermarket activities.
Best M&A house
Without dominating the adviser rankings for any one European country, Morgan Stanley is strong across all the large European economies, ranking first in Spain, second in the UK, third in Austria, fourth in Germany, and fifth in France. It is similarly strongly placed across the smaller European economies.
Rivals have questioned the firm’s ability to maintain a top-ranked corporate finance franchise without either a strong parent bank balance sheet or a leading debt markets and FICC franchise. However, Morgan Stanley’s M&A business has thrived on the old-fashioned virtues of providing strategic advice for the long term.
Morgan Stanley assisted Deutsche Telekom over a 12 to 18 month period in the comprehensive evaluation of strategic and financial alternatives for T-Mobile USA, which culminated in the sale of the unit to AT&T earlier this year in the highlight deal of recent months.
On March 20 2011, Deutsche Telekom announced the sale of T-Mobile USA to AT&T for $39 billion, consisting of $25 billion in cash and $14 billion in shares, a stake of approximately 8% in AT&T, the world’s largest telecom company by revenue.
The purchase price reflects a premium of 50% to broker sum-of-the-parts valuations for T-Mobile USA. The transaction allows Deutsche Telekom to maintain substantial exposure to the growing but intensely competitive US wireless market while de-risking its US investment.
Still subject to US regulatory review, it is the largest M&A transaction in European telecoms and in Germany overall since 2001.
Morgan Stanley served as lead financial adviser to Deutsche Telekom and T-Mobile USA on this industry-defining transaction, which is widely acknowledged as a big success for Deutsche Telekom from a capital markets perspective, as indicated by a 11.3% increase in its share price following the announcement and 15 broker upgrades on announcement day alone.
Among other landmark deals, Morgan Stanley acted as joint financial adviser, sponsor and corporate broker to International Power in its $25.1 billion deal to acquire GDF Suez Energy International in exchange for a majority stake in the new enlarged entity, a deal that released a substantial cash payment through a special dividend to International Power’s existing shareholders.
Best debt house
HSBC capitalized on the low-rate environment by conducting a series of key liability management exercises for European corporates. Most important of these was the EDF tender and new issue, which helped the corporate extend its average debt maturity by nearly two years and at 4.5% achieved the lowest coupon for a 30-year euro benchmark. The deal was the second-largest liability management transaction in Europe last year and the only 30-year euro trade. The bank also arranged the largest-ever sterling bond with a maturity beyond 40 years for EDF – which was the first deal of its kind since 2007.
HSBC led the pack in European FIG as well, arranging the first European insurance sector tier 1 deal since 2009 for Prudential and the first non-step hybrid tier 1 post the Basle announcement for IntesaSanpaolo. The bank was also joint bookrunner on three out of four of the first sterling covered bond deals. It was instrumental in opening up new product segments and geographies for Western European clients during the year – including the three-year Rmb300 million ($46.4 million) trade for Unilever, which was the first CNH bond for a European corporate and only the third-ever CNH issue from a foreign corporate.
Best risk management house
One of the key challenges for companies is that there has been a big rise in the price of hedging all these increasing risks, so the ability to provide innovative in-house solutions enables Deutsche Bank to stand out from its peers. In June 2010 it brought together its corporate finance, markets and transaction banking teams so as to give its clients coverage from all silos of its platform. This means that clients could use parts of their balance sheets that are healthy, such as cash positions, or future receivables, to hedge out risks further away, through internal Deutsche solutions, rather than over-paying in the markets.
Specific sector risks have also been tackled in several deals that have set industry standards. By looking at the whole of one Swiss company’s balance sheet, Deutsche was able to save it SFr100 million ($119 million) it was spending on hedging against Swiss franc depreciation. Deutsche is also leading the way in helping financial institutions – from European banks to asset managers and insurers – tackle their funding, liquidity, ALM and regulatory risks, which are mounting day by day.
Best cash management house
Underpinned by the strength of its FX4Cash platform, Deutsche Bank was voted the number one provider of cash management services for western European companies in Euromoney’s annual cash management survey. It was also voted number one in dollars by financial institutions and number two in euros.
Key to Deutsche’s success this year has been the decision last summer to put transaction banking back into the new corporate and investment banking structure, which allows corporate and financial institution clients to be covered by transaction bankers who can also talk markets. The effectiveness has been seen in its very high levels of client service accolades in external surveys such as those by Greenwich Associates.
Taking a currency-led approach to cash management has proved useful in a time of global FX volatility. Companies in Europe are relying on global sales but also want those sales to come back to head office as quickly as possible, so as to manage their liquidity positions. Financial institutions are also keen to manage their currency and liquidity positions as quickly as possible, making Deutsche’s approach particularly valuable this year. It also allows those local banks to work with their clients globally without incurring the costs of global expansion themselves.
Best flow house
But it is the momentum the firm has generated in growing its flow equities business over the past year that underlies this year’s award. The firm is now the number one overall European equity derivatives provider, according to Extel. Breaking down the walls between cash equities, equity derivatives, research and structured products has enabled the firm to gallop up the league tables, while also innovating in new product areas.
Although not as strong as others in all commodity markets, where Barclays Capital has chosen to compete it is winning. In emissions trading it is one of the largest liquidity providers and it is the number one player in European OTC energy derivatives, according to Greenwich.
Underpinning its wide array of clients is a market-leading IT platform, which operates under the overall name of Barx. Over the course of the year it has added a number of new features in FX, fixed income and futures, and it was the number one electronic execution platform in Euromoney’s inaugural rates survey.
Best project finance house
In energy, BNPP has taken a leading role in two of the most important and innovative deals of the year: Nordstream Phases I and II, and the Exeltium Power Purchase deal in France. Many of the deals it has undertaken have opened markets, and in some cases these have had a big impact on the wider economies in which they are being done. Sponsors and governments turn to BNPP when they need to get these kinds of transactions done.