Best global debt capital markets house:
Bank of America Merrill Lynch
|Best flow house in western Europe|
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The last year has been an extraordinary one in DCM. The unprecedented events in Europe have dominated the story and prompted wild volatility that has often seemed to defy logic. Europe’s sovereign markets during the first quarter of 2015 entered completely uncharted territory, while the flood of non-European issuers to the euro market also took many by surprise. Barclays, the global debt house for 2015, has been intimately embedded in this narrative.
“The overriding theme this year has been the movement in the euro, the corporate and sovereign financing that has been affected by that movement, ECB buying activity and the issues around Greece,” says Mark Bamford, head of global fixed income syndicate at Barclays in New York. “Through it all we have been a trusted adviser to issuers on a repeat basis. We were lead manager on both the Belgium and Ireland trades that reopened the euro primary market and were the sole bank to be mandated on both. We were also on the first transactions post-QE commencement for Italy, Slovenia and the European Investment Bank.”
“Supranationals, sovereigns and agencies are over 50% of volumes for the business,” adds Mark Lewellen, head of DCM risk solutions group, EMEA, at Barclays in London. “You have to be leading in SSA to be leading in DCM.”
We have seen one of our biggest increases in market share among corporates
A theme of the year in across SSA, financials and corporates has been the rush to the euro market by non-European issuers taking advantage of the extraordinarily attractive basis swap terms available in the first quarter of the year. The QE-driven market conditions saw a flood of first-time issuers in Europe across all parts of the market.
“Twenty-two percent of euro supply over the period has been from the US,” says Jonathan Brown, head of European fixed income syndicate at Barclays. “Investors have been shocked by the supply, and there have been periods where there has been no secondary market.” A fundamental requirement of effective advice in such volatile and unpredictable conditions is the ability to seamlessly handle mandates between geographies.
“The cross-border nature of our business has been very important over the last 12 months,” says Brown. Speaking to Euromoney in June, he says the bank is talking to clients about turning some mandates back into dollars. “We outperform during periods of volatility,” Brown claims. “QE saw an environment in the SSA space that we had seen in the covered bond space six months previously, so we had a good sense of how things would go. Investors did go on strike eventually.”
Non-European corporate issuers in euros also stormed the market in the first quarter of this year, particularly US names. Having accounted for 15% of euro investment-grade corporate supply in 2014, US issuers surged to 26% of supply by June 2015. Given its joint home markets of the US and the UK, Barclays was particularly well-placed to ride this wave of reverse yankee issuance. It was joint bookrunner on the key trades of the period, including the €8.5 billion Coca-Cola deal in February – the largest-ever euro deal from a US issuer. “We were in talking to Coke early,” says Jim Glascott, global head of DCM at Barclays in New York. “We had never done a bond deal for Coke before – they were a corporate client, not historically a bank client.”
While most of the DCM drama over the last year has taken place in Europe, elsewhere the story has been one of growing event-driven activity, particularly in the US. While US competitors such as BAML and Citi have provided fierce competition in M&A-related DCM, Barclays has been involved in several important deals over the period. These include BSkyB’s acquisition of 21st Century Fox’s stake in Sky Deutschland and Sky Italia and Kinder Morgan’s acquisition of KM Energy Partners, KM Management and El Paso.
In high yield, it was joint MLA on the financing for the €12.5 billion acquisition of TRW Automotive by ZF Friedrichshafen in September last year and joint underwriter of $14.8 billion in acquisition facilities for Valeant Pharmaceuticals’ acquisition of Salix Pharma. In May this year it was sole coordinator on Shell’s bridge acquisition financing for its purchase of BG Group. “We have seen one of our biggest increases in market share among corporates,” says Bamford. “We have been a huge beneficiary of the uncertainty in euro/US dollar.”
While FIG volumes continue to be depressed, the sector is one that now requires much structural innovation. “To be strong in FIG you need to be strong across senior unsecured, hybrids, covered bonds and ABS – you need to have a strong position in all,” says Brown.
Barclays is a market leader in AT1 innovation and tier-2 Cocos, as well as transforming legacy capital into new CRD IV-compliant capital. Key deals over the period include Standard Chartered’s $2 billion AT1 and, in insurance, the €500 million perpetual for SACE. Hybrid expertise was also brought to bear in Total’s record breaking €5 billion corporate hybrid in February – on which Barclays was global coordinator.
“DCM and risk management at Barclays have never been in better shape,” says Lewellen. “Our objective is to maintain and protect this business. This is a great franchise and is at the forefront of our DNA.”
In flow, by contrast, the game is increasingly one of when and how to scale back and restructure most effectively: who is best at reducing the business’ cost of capital while winning market share in the most profitable segments? Barclays can justifiably claim to have adapted relatively early to the new landscape. It made fundamental changes to the way it operates as a flow house, creating a new macro unit containing rates, foreign exchange and some commodities products, alongside an equities and credit products platform.
In the first quarter of 2015, it says the strategy is already paying off, with revenues on the up, including a 13% year-on-year increase in income in the macro unit. For the first time in three years it re-entered the top three by market share in western Europe in Euromoney’s 2015 foreign exchange survey. It also ranked first by volume, according to Greenwich Associates, in European fixed income and rates trading.
The changes have seen Barclays exit, for example, physical commodities trading with the exception of precious metals. Instead, it has continued to invest in technology, helping clients manage regulatory changes and providing original investment ideas. In foreign exchange, it has shifted to algorithmic execution of benchmark orders, using time-weighted average prices against a minimum fee. It has also expanded the Gator upgrade to Barx, its proprietary electronic trading tool.