Best debt house 2006: League tables tell only half the story


Alex Chambers
Published on:

Euromoney’s new poll shows that, according to the world’s largest issuers, Deutsche and Citigroup have the quality as well as the quantity of business to maintain their leading positions. But, as Alex Chambers reports, the results also throw up some interesting contradictions.

Full poll results

Debt poll of polls: Customer votes reveal the new big three

Primary debt poll

Quality versus quantity
League table Vs poll results
BankCategoryLeague tablePoll resultUp/Down
JPMorganUSD international15-4
Goldman SachsUSD international94+5
CalyonABS international83+5
UBSEuro international153+12
CitigroupHybrid international134+9
SGEuro international68-2
LehmanAll MTNs48-4
RBSABS international311-8
Source: Dealogic, Euromoney
MEASURING THE PERFORMANCE and competence of debt intermediaries is far from straightforward. What is to be gained from simply looking at which institution is conducting the largest deal volume? Those banks willing to buy market share by subsidizing bond transactions for opportunistic borrowers can easily manipulate the most obvious quantitative performance measures such as league tables. The intense competition for business in debt has meant that this type of activity is extremely common. And even if the league tables are taken at face value, many aspects of debt provision are not captured by such simple measures.

Euromoney decided to challenge the information provided by the traditional league table techniques. These tables provide little insight into the experience and expertise that goes into providing clients with top-quality services in ratings advisory, structuring hybrid securities or recommending the right tactics for tackling a roadshow under challenging conditions. The skills and knowledge that go into bringing all of this to bear for a borrower are unique, vary from bank to bank, and cannot easily be discerned in measurements of market share.

Perhaps more important, league tables do not show what borrowers actually think about the quality of intermediaries’ advice and level of expertise.

Other methods of gauging competence in primary debt are qualitative and lack consistency. The colour provided on individual deals from press reports is not scientific, and industry awards are a subjective snapshot.

Top borrowers

By contrast, Euromoney’s new debt markets poll shows what just over 100 of the top 250 global borrowers thought were the best debt underwriters over the past 12 months.

The answers were given on a confidential basis and approximately two-thirds of the respondents were banks. The rest were split between government agencies, corporates and non-bank financials. The only under-represented issuers were sovereigns, which were relatively reticent about revealing their views. From a geographical perspective, the survey enjoys a decent spread. As expected, the biggest proportion of respondents were from the US, while from Europe it is the larger countries such as Italy, Germany and UK that account for a bigger share.

Euromoney asked borrowers 21 questions on general debt service: which is the best for deal execution, which bank has the best syndicate, the best coverage, top distribution, investor relations and ratings advisory. Borrowers were also asked for their views on the bank that best provided bonds in the key currencies, as well as non-core. The survey also tried to get to understand more about what is going on in product provision: it uncovers borrowers’ views on proficiency in plain vanilla bonds, swaps, loans, hybrids and inflation-linked.

The full poll results are available online, while the tables accompanying this article summarize the most important results.

In the light of their high ranking positions in most of the bond league tables, it is not surprising that Deutsche and Citigroup are highly regarded debt market operators. Citi and Deutsche are ranked first or second in 13 of the 21 areas on which issuers were asked to grade their banks.

Interestingly, however, Euromoney’s results for the positions below these top two banks do not match up with the bond bookrunner league tables. A number of banks register positions with borrowers that contradict their position in the Dealogic ‘all international bonds league table’. That could be because the survey was somehow skewed; but given the relatively high number of respondents, a plausible explanation is that league tables tell only half the story on primary debt expertise.

Smile and dial?

Coverage is one of the most important interfaces between issuers and banks. This function is how banks win business from their clients and how clients get advice. It is perhaps one of the key areas on which issuers take a measure of the quality of service from their banks. Origination officials have a delicate job of maintaining a dialogue with their clients without too obviously coming across as sales people. Building a relationship is key to the coverage role, and the role is changing. The old model of smile and dial is still valid but increasingly not enough, especially given intense competition.

“Issuers prefer a dialogue that is strategic,” say origination officials. And to make real money, it is not enough merely to push plain vanilla product at funding officials. Banks that want a decent share of issuers’ wallets are seeking to differentiate themselves from those institutions that are prepared to win business with the chequebook alone.

Bankers are now expected to understand a wider range of capital markets products – not just bonds but also derivatives, loans and equity-related products. The fact that many firms have toyed in recent years with merging their capital markets client-facing teams illustrates the point. Frequently though, mergers between, say, debt and equity occur only at a management level, thus keeping the dialogue at the coalface relatively product-specific.

The top-ranked bank for coverage of borrowers was Citigroup, scoring 268 (see Methodology). Only a little behind was Deutsche Bank (253) followed by UBS (226), Barclays Capital (189) and Merrill Lynch (172).

“I think we clearly have a market leading origination business that is a powerhouse of our fixed income platform,” says Mark Watson, European head of fixed income at Citigroup.

No firm can maintain a strong fixed-income franchise without winning new issue business. It is not just the fees that borrowers pay that are important – though many pay less than they once did – fixed income operations need product to feed the sales force and keep traders in the flow.

That flow is generally provided by financial institutions, by far the biggest users of the capital markets. As noted above, this dominance was reflected in the survey, with two-thirds of the respondents being financials.

“We have reinvigorated our FIG business in the last few years and it is gratifying to see the effort of a great group of people recognized by our clients. Profitability and market share might be the goals but we can only get there through consistent and creative coverage,” says Alan Patterson, head of financial institutions at Citigroup.

Citigroup’s DCM group is split into corporates, financial institutions and public sector. It also contains loans and rating advisory. There is no science to getting origination to function properly alongside relationship bankers, says Citi. The perfect organizational wall chart does not exist, the coverage model is adjusted to fit clients and country.

Although good coverage is important to having any kind of dialogue with issuers, execution of mandates is essential to maintaining it. Great deal execution is understandably high up the list of issuers’ priorities. No funding official wants to face criticism following a new issue. But with heightened competition in the debt capital markets it is not hard to find critics among envious would-be intermediaries when a treasurer leaves too many basis points on the table or, worse, fails to obtain the hoped-for financing.

Execution and syndication

In deal execution, the top rated intermediary is Deutsche. The German bank was voted number one by some distance, with a score of 308. Citigroup came second (241) followed closely by UBS (212), JPMorgan (181) and Merrill Lynch (177). Moving from execution to the best syndicate team, the top three banks are unchanged, although the gap between first and second place is much narrower (274 vs 244), third-placed UBS is on 207. Lehman Brothers and Barclays Capital were placed fourth and fifth respectively.

At first glance, it might not be obvious what tangible difference there is between the skills involved in deal execution and syndication. But there is a lot of activity that takes place behind the scenes.

“Syndicate is part of the execution process but execution starts very much with origination and flows through, hand in hand with transaction management working on documentation, structuring, advisory in tandem with the syndicate desk. Syndicate decides upon what markets and advises the borrower on how best to maximize value, in terms of currency, product and tenor,” says Zia Huque, global head of syndicate at Deutsche.

But it is not just about syndicate and borrower getting the price and market right. Printing a bond is a time-consuming business for all issuers, and funding officials want the process to be as smooth as possible.

Big global banks put a huge amount of resources into coverage, syndicate, sales and trading capabilities. “I don’t think enough people on the Street have the ability to do that in a fully fledged fashion,” says Huque.

“I think we clearly have a market leading origination business that is a powerhouse of our fixed-income platform”
Mark Watson, Citigroup

Mark Watson, Citigroup
Clearly size is an important factor when it comes to capabilities on distribution, and no bank comes bigger than Citi. Citi was placed first by borrowers when it came to its sales forces’ effectiveness. Deutsche was second, followed by Barclays Capital, JPMorgan and UBS.

“I’m pleased by the recognition the borrowers have given us in this survey,” says Citi’s Watson. “Our global distribution capability is one of the things that separates us from the rest of our competitors. We are in 100 different countries, I think we have the biggest sales force out there.”

Citi also came first in deal-related investor relations (closely followed by Deutsche). Watson explains that obviously there is a strong link between its competence in that field and distribution. “That comes from having a strong distribution, it’s integral to having a constant dialogue with investors.”


Borrowers were highly predictable when it came to voting for banks that were best at managing deals in various currencies. It is hardly surprising that issuers linked the strength in a particular currency with where a bank is headquartered.

The top dollar houses are US firms. Citi scored number one, followed by Morgan Stanley, Merrill Lynch, Goldman Sachs and then JPMorgan. There was a similar outcome for the euro, where the top four banks are the well-known European fixed-income franchises: Deutsche, BNP Paribas, UBS and Barclays Capital. However, Citi sneaked in at number five. The top sterling firm was UK bank Barclays Capital, followed by RBS and HSBC.

Barclays has broken out of its traditional sterling background into euros and, to a lesser extent, dollars. It is rare among the banks in that it does not have traditional M&A and equity markets to worry about.

"We have a less complicated structure than many other firms. A lack of organizational complexity when running an investment bank is an advantage, especially when business is growing as rapidly as it is for us today. We aim to build a sustainable business that serves clients very well. We are pleased when our strategy results in top rankings in league tables and polls, but such rankings are not the main objective," says John Winter, European head of investment banking and DCM at Barclays Capital.

Lorenzo Frontini, Lehman Brothers

“Five or six years ago we were more focused on specific sectors in Europe, but we have built out our profile aggressively to be a player in the euro arena” Lorenzo Frontini, Lehman Brothers

The survey shows up a few results that point to strong performance from banks that are not the biggest in terms of market capitalization or league table positioning. For example, no one could call Lehman a small bank but, compared with the biggest traditional fixed income houses, it is regarded as a lean machine, especially outside its US homeland. That said, it is not as lean as it once was.

“Five or six years ago we were more focused on specific sectors in Europe, but in the past couple of years we have built out our profile aggressively to be a relevant player in the euro arena,” says Lorenzo Frontini, Lehman’s European head of debt syndicate.

Frontini argues that Lehman frequently has a different read on the market than other investment banks. “We try to look at the curve and think out of the box to be able to identify different trade ideas for our issuers,” he says. “We don’t always recommend standard five- and 10-year benchmarks.”

Ratings and hybrids

In addition to its fourth place in syndicate, Lehman came a very close second to Merrill in hybrid (130 versus 129) and ratings advisory (177 and 124 respectively). Ratings and hybrids are areas where both firms are focused. The provision of vanilla benchmarks in the core currencies will always be an integral part of the debt capital markets battleground but ever since the rise of the commercial banks in the debt business in the early to mid-1990s it has increasingly made a lot of sense for the old-school US investment banks to try to pick value-added areas where they can present themselves as the leading experts with longstanding experience.

“I think this is a validation of what we have been focused on consistently for over 10 years in Europe,” says Amir Hoveyda, European head of debt capital markets at Merrill Lynch. “We obviously started with financial institutions who were the first and remain the largest users of hybrid capital,”

Hybrid expertise has gradually evolved along with the wider market, from banks to insurers and finally corporates, says Hoveyda. “It’s very gratifying to see this sustained effort recognized by the end users.”

He continues: “Ratings advisory is part and parcel of hybrid capital advice, structuring and execution. The key objective is to ensure that the ratings impact is positive. We have been consistently applying this applied ratings advisor approach. It is about securing the highest benefit from a ratings perspective for hybrids as well as managing ratings in strategic situations for both financial institutions and corporates.”

Longevity is something that Lehman Brothers also claims as a factor in explaining its proficiency in the fields of ratings advisory and hybrid capital. Lehman, Merrill and Goldman Sachs have the longest track record in this market, a function of the fact that they were structuring deals for the US banks that were the first to issue hybrids in the form of trust preferreds in the mid-1990s.

“When it comes to giving clients advice around investment banking products we think that where we differentiate ourselves is in providing a value added service,” says Benjamin Katz, European head of capital advisory in Lehman’s global finance division. “What that really means in this business is that it is issuer specific: looking at providing cutting edge technology around our knowledge in relevant areas such as regulation, accounting, tax and rating agencies,”

Since the late 1990s, innovation has been a constant theme in the European hybrid capital field. In contrast, however, the US market saw virtually no substantial change from the initial trust preferred revolution until a little under a year ago when Lehman Brothers got Basket D treatment for hybrids under Moody’s ratings methodology. The self-led deal, called ECAPs, was a real advance for the US as previously Basket D securities had only been structured in Europe. After executing a self-led deal, Lehman went on to conduct transactions for a series of US issuers.

“You might come up with a great idea for one client, but it will need to be customized to suit every borrower,” says Katz.

“Borrowers don’t rate league table trades as added value service. You don’t need coverage to do league table, you need a fax machine”
Henrik Raber, UBS

Henrik Raber, UBS
Completing the top five in hybrids are Goldman Sachs, Citi and UBS. Goldman Sachs’s third place hybrid raking is a reflection, no doubt, on its innovation in the US market during the latter part of 2005.

Hybrids have been getting many of the headlines over the past year and are growing in profile. The same can be said for structured notes and securitization.

Notes and security

“New product innovations are developed like retail structured notes or corporate hybrid that rapidly evolve to become another component of a broad product portfolio available to address the needs of our clients,” says Miles Millard, head of European capital markets at Deutsche. Deutsche topped the poll in MTNs, followed by Citi, Barclays, Morgan Stanley and Goldman.

All debt houses use plain vanilla and benchmark bonds as the bedrock of their franchises but intense competition, especially in Europe, has whittled away fees in these fields. More than ever it seems, the value-added products are things like hybrids, structured notes, structured finance and inflation-linked bonds. This is where the fiercest battles in debt are increasingly being fought.

Henrik Raber, European head of syndicate at UBS, says that his firm is willing to invest in the product base, but only if that comes from winning meaningful business. “We want to expand our strong platforms in emerging markets and subordinated debt for financials, and we are already growing in corporates. The next phase is covered bonds, ABS and structured notes,” he says.

It is worth noting a bank like UBS that is ranked only eighth in the all international Dealogic league table scoring quite highly for debt service in the poll. UBS has a simple explanation. “Borrowers don’t rate league table trades as added-value service. You don’t need coverage to do league table, you need a fax machine,” says Raber.

League tables often reflect the prevailing intensity of competition among banks. For instance it is well known that many borrowers are more than willing to take advantage of liquidity provided by intermediaries who are willing to cut fees or provide firm underwriting at unrealistic levels. This survey provides fantastic colour and many surprising results. There is also, though, plenty to confirm the level of competency in the primary debt markets that one could glean from looking at the leaders of the various league tables.