BBVA builds up investment banking
Bank on quiet hiring spree; More M&A and ECM in Latin America
Francisco Rey, managing director and head of global corporate finance at BBVA, joined the Spanish bank two years ago from Blackstone and has quietly overseen an investment programme to boost its capability in M&A advisory, equity capital markets and strategic derivatives transactions for corporate clients.
Since he joined, the bank has hired more than 30 investment bankers, and focused on deals spanning Spain, Spanish-speaking Latin America and the southern US. The bank is planning to upgrade its investment banking capability at BBVA Compass, the top-25 US bank it acquired in 2007 that operates across the US Sun Belt states. This effort will likely be more focused on debt capital markets.
When Euromoney catches up with Rey, the bank has recently priced the $1.15 billion IPO in Colombia of Cemex LatAm Holdings, which encompasses all the cement maker’s assets in central America and Latin America outside Mexico. Some 40% of the deal was sold to local investors, with the rest sold internationally, split roughly equally between buyers in the US and the rest of the world.
BBVA was joint global coordinator on this highlight deal in the Colombian equity market, the first large deal priced through bookbuilding and with large international placement.
At the start of December, trading began for FibraHotel, Mexico’s first hotel Reit, on whose $320 million IPO BBVA Bancomer was sole global coordinator. Meanwhile, the bank is talking to international companies about innovative ways of financing overseas operations at a time when bank-lending availability is constrained.
Last month, Euromoney reported on how many of the large European universal banks are cutting back their corporate and investment banking arms, exiting businesses where they lack scale. So, it’s refreshing to talk to a bank that’s building up its CIB division.
Between 2009 and the end of last year, BBVA hired around 1,000 new bankers into the wider CIB division across all products, industries and geographies. In the first nine months of 2012, operating income in the CIB division stood at €1.4 billion. That’s up 7.4% from the first nine months of 2011. On the basis of €5.55 billion equity allocated to the CIB division’s balance sheet, its €909 million net income for the first nine months implies a return of 16.4%.
The bank rarely appears in the upper reaches of the M&A adviser and ECM arranger league tables for Europe or Latin America but has finally decided that the time has come to punch its weight across a region that includes leading positions in Spain, Mexico, Peru and Colombia, as well as strong positions in Argentina, Chile and the southern US.
|Francisco Rey, managing director and head of global corporate finance at BBVA|
Rey says: "The bank had a fantastic platform that it had not taken full advantage of, partly because before the crisis pure commercial banking was such a fantastic business when banks could borrow at low cost and make decent margins lending to good companies. "Post crisis, we need more fee earnings to boost returns on the capital tied up in lending to fewer key accounts. We’re trying to price our provision of capital properly and partly that comes down to providing more services to key clients. And when you’re providing those fee advisory services, as well as bringing additional revenues, they also make your relationships with borrowers more solid."
Rey’s investment banking division also has offices in London, Paris, Milan and Frankfurt, but bankers there will mainly be advising European companies on acquiring and funding assets in and divesting from Latin America.
Rey says a typical example of BBVA’s ambitions and capabilities is its role as sole adviser to US-based Colfax Corporation, a leading provider of gas- and fluid-handling and fabrication technology, on its $235 million acquisition last year of Soldex in Peru.
Goldman Sachs isn’t quaking in its boots, but it’s a big deal by Peruvian standards, the second-largest last year. With plants in Lima and Bogotá, Soldex is the pre-eminent supplier of welding products to customers along south America’s fast-growing Pacific coast. The acquisition positions Colfax’s Esab division as the clear leader in south America.
Rey says: "US companies are overcoming reservations to investing throughout Latin America, given the macroeconomic stability, growth prospects and low costs. And we are one of the few international banks with deep relations with local companies and local treasury operations in those markets, so we can provide local funding and hedging solutions to acquirers that take into account all aspects of risk: FX, credit, inflation, correlation, et cetera."
It’s not just a service the bank can provide to acquirers – BBVA is a lead lender to Spanish cement company Cementos Portland Valderrivas. When the company came to refinance bank loans last year, certain members of its syndicate were unwilling to step up and the lead banks could not assume their commitments. Rey’s team structured a $430 million private placement of mezzanine finance with warrants attached to GSO, Blackstone’s credit specialist fund.
Rey says: "This was funding for a Spanish company secured against US assets with very limited recourse to the parent. It may be a model for other European multinationals that have grown abroad through acquisitions and are now seeing the natural hedging benefit from pushing borrowing down from the holding company level to the local cash-producing operating divisions. It’s the way private equity companies have always financed and corporations should be considering this approach."
Rey, after two years at Blackstone in the first stages of the financial crisis, following a 15-year career as an investment banker at Merrill Lynch reporting to Andrea Orcel, is keenly aware of the growing role these investors can play as providers of finance to the bank’s corporate clients. "Financial sponsors broadly defined – and that also includes pension funds, infra funds, sovereign wealth funds – have the advantage of tremendous flexibility to invest up and down the capital structure, and that opens fantastic investment opportunities to them," says Rey. "They can be a great source of capital for companies that have solid businesses but need to weather the storm, or simply, continue to grow."
However, they also provide competition to BBVA in its chosen markets. While the large investment phase of BBVA’s build-up in CIB is now drawing to a close, the battle for talent in growth markets continues. BBVA has lost three investment bankers recently, hired away to private equity funds now setting up in Colombia.