The Banker celebrates most innovative players in the investment banking field over the past 12 months.

Most Innovative Investment Bank

Winner: Bank of America Merrill Lynch

Most Innovative Investment Bank from North America

Winner: Bank of America Merrill Lynch

Highly commended: Citi, Goldman Sachs

Competition in investment banking is fierce at the best of times. Throw in the financial crisis and the regulatory deluge that followed, and you have an unforgiving environment in which to execute one of the largest ever pieces of merger and acquisition (M&A) activity in the sector.

On paper, combining Bank of America’s balance sheet strength and corporate banking and financing franchise with Merrill Lynch’s equities coverage and investment banking expertise made perfect sense. But the legacies of subprime assets and the Countrywide acquisition dragged down the group and soaked up management time. With competitors circling its clients and staff, sceptics started to wonder if Bank of America Merrill Lynch (BAML) could ever deliver on the rationale behind the merger.

Over the past year, it has delivered. According to data from Thomson Reuters, BAML increased total investment bank fees by almost 30% year on year in the first half of 2013, with a 1.2% increase in market share constituting the largest gain for any bank. Arguably, it now sits close to Goldman Sachs and JPMorgan among a top triumvirate of global investment banks, pulling away from US competitor Morgan Stanley while European contenders such as Deutsche Bank and Barclays are tied up in wide-ranging reviews of their businesses.

Christian Meissner, head of global corporate and investment banking at BAML, says early recapitalisation has certainly helped. The strength of the bank’s capital position even facilitated a $5bn share buyback during 2013. That allows the bank to focus on client business, and reassures clients that their counterparty is here to stay. The size and resilience of the fee pool in its home US market is equally important as a base from which to build a global franchise. 

But since his arrival in 2010, Mr Meissner has also focused on something harder to quantify: the culture of the bank. There were questions over whether an entrepreneurial former partnership investment bank could work together with a giant, process-driven universal bank. Mr Meissner says serving large clients – corporate, financial or sovereign – is always a team business, requiring a long-term perspective that takes in the whole of the bank’s product suite.

“We have created incentive and management structures to make sure that people do not simply look after their own product, they offer the whole firm [to the client]. The merger happened in very challenging circumstances, it is very difficult to engineer change when staff are feeling unstable, and people’s identification with the firm suffered at that time. We have rebuilt our employees’ pride in the business, people are confident that the model is a powerful one and are ready to capitalise on the opportunities,” he says.

He believes the team mentality has been especially important for BAML’s progress in the M&A business, recognised in The Banker’s award for this product category. The bank’s increase in M&A market share outperformed its overall gains, and the business is important for client relationships because it connects the bank directly with chief decision-makers. 

Just days after judges cast their votes in these awards, BAML worked extensively for Verizon on its buyback of Vodafone’s stake in the business. Mr Meissner sees this relationship as a shining example of the spirit he has sought to foster in the bank. In addition to providing the M&A advice, BAML was one of four banks that underwrote a $61bn bridge financing facility and was a bookrunner on the $49bn bond issue by Verizon, the largest ever. 

“This kind of work requires a multi-year view taking in the whole of the bank. The strength of our financing business is not the sole reason for our gains in M&A, but it is clear that clients increasingly want to come to a single bank with full market capabilities,” he says.

Mr Meissner is already focusing on other areas where he feels there are opportunities for the bank to make further progress. Geographically, although BAML has good coverage across emerging markets, he believes there is a chance to increase deal flow. And in terms of products, the bank is working to expand its strong treasury franchise and presence in dollar trading to compete with the leading foreign exchange houses on other currencies. 

The electronification of trading and the ever-expanding reporting requirements to comply with new regulations are creating what Mr Meissner calls a “technological arms race” that suits an investment bank with a large scale and global footprint. The nature of client demands has also changed since the financial crisis – conditions are more complicated, but clients expect products to be more straightforward. 

“It is not about creating lots of new acronyms anymore; what clients want is an integrated approach to financing, advice and risk management. The innovation comes from using simpler products to solve complex problems in a volatile economic and regulatory environment,” he says.

Most Innovative Independent Investment Bank

Winner: Moelis

Highly commended: Houlihan Lokey, Jefferies

Moelis celebrated its sixth anniversary in July this year. Since its founding, it has become one of the leading independent investment banks globally, advising on more than $940bn-worth of transactions. The firm, which opened offices in Frankfurt, Mumbai and Paris in 2012, now has 600 employees operating in 14 cities across North America, Europe, the Middle East and Asia-Pacific.

Ken Moelis, the company’s founder and chief executive, believes that it can continue to expand in the coming years, even if not at the same rate as it has since 2007. “We can’t grow at the same pace forever,” he says. “But we will continue to grow. I think our model is very relevant to what our clients want these days, which is a real in-depth advisory partner.”

Mr Moelis believes the attraction of independent investment banks is their flexibility and ability to spend more time addressing the needs of clients. He says that bankers at bulge-bracket firms are increasingly frustrated by new regulations, which are forcing them to work on internal issues at the expense of those of their clients. “I spend 80% to 90% of my time on clients,” he says. “My goal is for our bankers to spend 98% of their time on their clients, on external affairs.

“The bankers that really want to be involved with their clients will come over to boutiques to ply their trade, and the people who want to manage large companies will stay at the larger banks. Our focus is to free people up and make sure they are deeply embedded in their clients’ problems, not ours.”

Moelis has worked on plenty of innovative and big deals in the past year, including being financial advisor to food giant Heinz on its $28bn sale to investment companies Berkshire Hathaway and 3G Capital in June. The firm also showed the strength of its financial institutions banking capabilities by advising the London Metal Exchange on its £1.4bn ($2.25bn) takeover by Hong Kong Exchanges and Clearing in December, and Osaka Securities on its $3.3bn-equivalent merger with the Tokyo Stock Exchange in January.

The latter deal proved that Moelis’s partnership with SMBC in Japan, an alliance that is about two-and-a-half years old and which helped the US bank get the mandate, had paid off. “It was an early victory and something we think we can replicate fairly often,” says Mr Moelis.

He is confident that deals from Japan will pick up in the coming years as the country’s companies exploit their strong balance sheets and the weakened yen to buy assets abroad. He is optimistic, too, that US mergers and acquisitions (M&A) activity is about to increase. “M&A will probably pick up given the gathering strength of the US economy,” he says. “But I don’t think the boom is back. Supply will increase slowly and steadily for a while. We won’t see a return to the levels of 2006 any time soon.”

Most Innovative Team

Winner: Citi equity-linked team

Most Innovative Investment Bank for Equity-Linked

Winner: Citi

Highly commended: Deutsche Bank, RBC Capital Markets

For most of the past year, the global equity-linked market has been subdued. With interest rates so low across the developed world, straight debt issuance has been extremely appealing to borrowers. “The higher credit-rated companies questioned the benefits of going to the equity-linked market when they could raise straight bonds with such low coupons,” says Ken Robins, head of equity capital markets (ECM) for Europe, the Middle East and Africa at Citi, winner of this year’s award.

ECM houses have thus had to be especially innovative to bring borrowers to the equity-linked market. Citi achieved that better than most of its rivals. Among the companies it felt would benefit from convertible bonds were those that might struggle to issue straight bonds or whose share prices were unstable. “There was a narrow band of corporates that felt they could benefit from the equity-linked market, in that they were either having to pay up to access the fixed-income market, were unrated, were looking to diversify their investor base, or had stocks that were volatile,” says Mr Robins.

One company Citi succeeded in luring to the market in Europe was Russian steel producer Severstal. It managed to issue a $475m convertible bond in September 2012 that had a coupon of just 1% (a level far lower that the BB rated firm’s fixed-income rates) and an exchange premium of 45%, the highest any European company had achieved in five years. “It has proved a very good deal for Severstal,” says Mr Robins. “The timing was very smart. It wouldn’t be a deal that could be done today with the same terms.”

In the US, Citi was equally prolific. Its highlights included a $230m transaction in September 2012 for Genesee & Wyoming, a railroad operator. The deal was the first mandatory convertible to have a call feature the issuer could use if its takeover of RailAmerica, announced shortly before, fell through.

Mr Robins is confident that the equity-linked market has turned for the better following May’s announcement by the US Federal Reserve that it might slow its quantitative easing programme. The subsequent rise in rates has made a growing number of companies consider convertibles. Citi will doubtless be able to capitalise if those companies actually decide to go ahead with deals. “Since May, things have changed because of US rates increasing,” says Mr Robins. “While we may not see that many AA rated companies coming to the market, those in the BBB or even A zone are at least investigating deals, especially if they can get high premiums and low coupons.

“Some of the best periods for the convertible market have been those in which rates are rising.”

Most Innovative Investment Bank from Western Europe

Winner: Deutsche Bank

Highly commended: HSBC, RBS

Western European banks have been under immense pressure over the past year, with the need to adapt to new regulations – not least Basel III, Dodd-Frank and the European Market Infrastructure Regulation – heavily restricting their operations. The situation has only been made tougher by politicians often shifting regulatory goal posts and because some crucial issues, such as liquidity and leverage ratios, have yet to be finalised.

Many banks have reacted by cutting various business lines, retrenching and making little progress when it comes to offering their clients new and innovative products.

Deutsche Bank is not one of those. It has continued to try and develop new approaches and products, the result being that it has come up with several innovative and popular structures and investment ideas, while its market share in corporate finance has risen. That all of this has been done while it has been reducing its risk-weighted assets is impressive.

The fixed-income market has been particularly hard hit by new regulations and the pressure on banks to raise their capital ratios. Zar Amrolia, Deutsche’s co-head of fixed income and currencies, a division created last November, admits as much. But he says the fixed-income business will continue to be lucrative for investment banks in the long term. “The fixed-income market has been challenging in 2013,” he says. “There has been a huge amount of regulation to take into account. The industry is having to re-shape itself in response to that.

“But corporates will continue to borrow throughout the cycle. Real money accounts will still want to hedge their foreign exchange risks. And pension funds will still have to hedge their long-dated interest rate and inflation risks. The reality is that client demand will always exist, even if the way we interact with those clients changes.”

Deutsche has shown its innovative streak once again in commodities and foreign exchange, two categories it won in this year’s awards. In commodities, it launched a gold-linked product for retail investors through Deutsche Postbank, its retail arm in Germany. It also became the first bank to provide inventory monetisation for several non-London Metal Exchange grade metals, allowing clients to use these assets as collateral.

Other achievements included the launch in November last year of the first liquid covered bonds index, while in September 2012 it launched the first tradable benchmark for investors wanting to track offshore renminbi bond markets.

Most Innovative Investment Bank from Central and Eastern Europe

Winner: VTB Capital

Highly commended: Halyk Finance, Sberbank CIB

Firmly established as the leader in Russian fixed-income markets, VTB Capital has in the past year made significant strides bringing new products to the Russian market, and advancing its business into frontier emerging markets elsewhere. In December 2012, the bank reached financial close on the €3bn Western High-Speed Diameter toll road, the largest public-private partnership (PPP) in Russia and largest PPP toll road project in the world to date. It has also broadened the assets available to private investors by offering Russia’s first exchange-traded structured notes that used the benchmark Russian Micex stock index and the price of gold as underlyings.

VTB Capital also has a track record of innovating to finance its own parent, VTB Group. Following a series of currency firsts for Russian bonds such as Singaporean dollars and Chinese renminbi, the bank became the first Russian borrower to issue in Australian dollars in December 2012. And in a critical development for the Russian financial sector, it issued the country’s first perpetual Tier 1 subordinated bond in July 2012, creating a new class of bank capital in the country.

“VTB Capital operated internationally from its inception. If you want to deal with international investors, you have to have a fully fledged platform. About 18 months ago, we embarked on the next stage of the bank’s international development by adding more complex financial products and solutions. Again, the key idea is to originate domestically and distribute internationally. What this gives us is a totally different level of client penetration and relationship intensity on the investor side, which also allows us to decrease risk on the balance sheet,” says Alexey Yakovitsky, chief executive of VTB Capital.

Beyond Russia, VTB Capital was a bookrunner on an innovative bond exchange for the Development Bank of Kazakhstan in December 2012. In the same month, it became the first Russian bank to manage a Eurobond issue for the government of Serbia, as the country sought to tap into Russian investment. The bank also advised on the €1.7bn restructuring of Bulgaria’s Vivacom, and joined a consortium that ultimately bought control of the telecom company. Africa is another focus of the bank as Russian investors increase their activity there, and in November 2012 VTB Capital was the sole arranger for a private placement of Angola’s debut international bond, for $1bn. 

“Central and eastern European provides VTB Capital with an excellent entry opportunity due to the long-term trend of western European investors retreating. We expect cross-border mergers and acquisitions to continue to thrive in the region, in addition to investments flowing into the region from Russia, China and the Middle East,” says Mr Yakovitsky.

Most Innovative Investment Bank from Africa

Winner: Rand Merchant Bank

Highly commended: Standard Bank

South African banks came through the global financial crisis of 2008 and 2009 largely unscathed. They have capitalised on this position of strength over the past few years to increase their investment banking business in the rest of Africa while some of their would-be rivals have retrenched. Rand Merchant Bank (RMB), the investment banking arm of FirstRand, South Africa’s second largest lender, has been among the firms rapidly increasing their African revenues. “Global sentiment, while seemingly improving, has been pretty dire,” says Peter Hayward-Butt, co-head of investment banking at RMB. “South African banks, however, have been more or less ring-fenced from that. They have surplus capital. The situation has probably played to their advantage.”

A major breakthrough for RMB came late in 2012 when it was granted a merchant banking licence for Nigeria, sub-Saharan Africa’s second largest economy after South Africa. RMB has an office with about 30 people in Lagos, something Mr Hayward-Butt says is already reaping benefits in the form of closer interaction with the country’s companies. “It’s given us a different edge,” he says.

He believes Nigeria will be a lucrative market for RMB in the next few years. Its big firms have traditionally shied away from international capital markets, instead preferring to take on loans from local banks, but that is changing as they seek to expand their operations. Many are tapping the syndicated loan market for the first time, while others are issuing Eurobonds. Some, such as Dangote Cement, the largest listed company in Nigeria, are looking at selling their shares overseas. RMB has positioned itself well to be part of whatever deal flow does emerge from the country.

RMB has also been active in the rest of the continent in the past 12 months, including being the sole mandated lead arranger on a multi-million dollar syndicated loan for telecommunications group MTN Zambia, and arranging senior secured debt for Ethiopian Airlines.

It has maintained its impressive market share in South Africa, too. Mr Hayward-Butt believes that, despite the country’s slow growth rate of 2%, plenty of investment banking deals will emerge in the short to medium term. “South Africa is extraordinarily resilient,” he says. “And I believe the corporate market is heavily under-geared.”

Testifying to the country’s strength as an investment banking market, RMB was a bookrunner on a R1bn ($122m) convertible bond for retailer JD Group last year, which was the company’s debut equity-linked transaction and one of the first seen in South Africa.

RMB also led an innovative and ground-breaking rand-denominated bond of R850bn for Namibia in November last year, making it the first foreign sovereign to issue in the currency.

Most Innovative Investment Bank from Asia-Pacific

Winner: Citic Securities 

Highly commended: DBS, Maybank

In the past year, Citic Securities has worked on a number of significant and innovative deals that secure its place as a leading investment bank in China and the Asia-Pacific region. And now the investment bank is also emerging as a global player. 

In July, Citic Securities completed the acquisition of CLSA, buying an 80.1% stake in the Hong Kong-based brokerage from Crédit Agricole Corporate and Investment Bank. Having previously bought a 19.9% stake in CLSA, the completion of this transaction makes CLSA a wholly owned subsidiary of Citic Securities.

Cheng Boming, president of Citic Securities, cites this acquisition as one of the greatest achievements of the investment bank in the past year. “The internationalisation of our company has achieved substantial progress with the acquisition of a 100% stake of CLSA and becoming its parent company,” says Mr Cheng. “The acquisition is the very first – and a milestone in history – for a Chinese investment bank to fully acquire an overseas company with a business presence around the globe.” He adds that Citic Securities’ business already covers all major markets in Asia, Europe and North America. 

Aside from the opportunities of growing the business internationally, there are also opportunities in Citic Securities’ home market of China. Mr Cheng says: “The business potential of internet banking may change the landscape of our existing business. Internet finance is also reshaping current financial models in China. Securities firms need to ride the tide of technological evolution and changes in the business market, and incorporate the advantages of clients, capital and professionalism with the platform, technology and information from internet companies. We need to establish a client-centric business and look for new business models.”

In seeking out opportunities for new business models, however, there are challenges in the competitive landscape that Citic Securities has to contend with. “The pace of business consolidation for financial institutions is accelerating. Under the next wave of ‘financial marketisation’, financial institutions such as securities firms, commercial banks, insurance companies, etc... will consolidate and cross over their business scopes, marching towards a new business co-operation. Eventually, securities firms will rival banks, trust houses and fund houses in investment banking, wealth management and loans businesses,” says Mr Cheng. 

Added to this, Mr Cheng notes that the investment banking industry in China is facing other challenges. He points to the record fine that the China Securities Regulatory Commission imposed on Everbright Securities after a glitch in its trading system. “In the face of rapid development of the industry, securities firms need to increase their awareness and understanding of risk management and prevention,” says Mr Cheng.

Most Innovative Investment Bank from Latin America

Winner: BTG Pactual

Highly commended: Itaú BBA, LarrainVial

Taking risks alongside its clients is a source of pride for BTG Pactual. As well as devising clever structures for its deals, the São Paulo-based investment bank has often been able to offer firm commitments to equity deals when clients have needed it. It has also been able to make these decisions quickly.

 “I think that the relationship we’ve had with corporations in Latin America has been [about] the ideas that we bring, our efforts and the equity and credit that we made available for them,” says Guilherme Paes, BTG Pactual’s head of investment banking. “Companies perceive us as someone who is there for the long term, not someone who is there just to do one merger and acquisition or equity deal without taking risk. In some way, we share part of the risk of the client.”

 One such companies is Biosev, a leading sugarcane producer, for which BTG Pactual not only created an innovative structure for its 709m reais ($359m) initial public offering, it also provided a firm guarantee for half of the deal. After a failed attempt last year due to adverse market conditions, Biosev tried to list on Brazil’s stock exchange, and hired BTG Pactual as its leading bookrunner. The company was under pressure to list by August 2014; if this were not to happen, minority shareholders would have exercised put options against it. 

Thanks to a cross-division, collaborative effort between investment banking, equity capital markets, and derivatives and proprietary trading teams, BTG Pactual came up with an offer that included shares and put options. Investors had the option to buy ‘combos’, shares and put options against controlling shareholder Louis Dreyfus, or shares only, with priority allocation offered to those with orders for the latter. In addition, the bank was able to put its own capital behind the deal to increase investors’ confidence. The innovative structure and effective roadshow generated such a strong institutional investor demand that BTG Pactual’s equity commitment was no longer needed.

 BTG Pactual is also active in other fast-growing markets in Latin America, such as Chile and Peru, but Brazil is still by far the largest – and its fortunes have a heavier impact on local banks. Despite the rough economic climate in its home country, BTG Pactual has managed to not only retain its vast market share, but to also double the fee pool.

 “We’ve had our best year since 2007,” says Mr Paes. “Although the market has slowed down, we’ve been able to increase our fee pool by almost 100% compared with last year. [We had] more profitable deals and innovative deals thanks to the way we work as an integrated bank, and the way we can use our equity for the benefit of clients. I think that one our big advantages is the [collaboration] between divisions. This allows the bank to think as one team.”

Most Innovative Investment Bank from the Middle East

Winner: Saudi Fransi Capital

Highly commended: Abu Dhabi Commercial Bank, Samba Capital

Already regarded as one of the Middle East’s leading investment banks, Saudi Fransi Capital (SFC) stood out this year for being not only one of the most active, but also the most innovative across a range of asset classes. During 2012, SFC presided over arguably the most complicated and subsequently innovative deal of the year – the restructuring of mobile telecommunication company Zain KSA.

The mobile operator had accumulated losses approaching 75% of its share capital, which could potentially have resulted in its delisting, and therefore urgently needed to reduce its debt burden because of high debt-servicing costs. It required equity injections for capital expenditure on its network and had to restructure a large loan that was payable.

Doing a plain vanilla rights issue was not an option, so instead SFC developed a mechanism whereby some of the major shareholders of the company, who had provided shareholder loans to Zain KSA, would subscribe to the rights issue by converting their shareholder loans to equity. Despite Zain KSA’s lagging stock performance in the days leading up to the start of the subscription period, the total rights issue was 105.4% covered.

This marked the first time that debt was converted through a rights issue process in Saudi Arabia and has set a blueprint for other companies trying to use any one or a combination of these restructuring methods.

SFC also set a new benchmark in innovation by acting as sole financial advisor, lead manager, bookrunner and underwriter for the first privatised entity that went public through a premium initial public offering (IPO) – Saudi Airlines Catering Company’s SR1.3bn ($346.6m) IPO. Institutional books were more than four-and-a-half times oversubscribed at the highest price of SR54.

SFC also acted as sole lead manager and bookrunner on Saudi BinLaden Group’s SR1.3bn sukuk issuance – one of the few instances where a Saudi corporate has issued in a senior secured format.

“Our most innovative deal, and the one I am proudest of, would have to be Saudi BinLadin Group’s sukuk, which we closed in March 2013,” says Yasir Al-Rumayyan, chief executive of SFC. “There were several unique features about this transaction – for example, it was the first collateralised sukuk in Saudi so it required developing a structure and mechanism for perfecting the security arrangement.”

SFC has also been prolific in both the equity and debt capital market space – presiding over transactions worth SR20.1bn. Since the start of 2012, SFC has advised and lead managed the highest number and value of transactions – completing one-third of all Middle Eastern equity capital market transactions since June 2012, with an aggregate value of SR7.4bn.

“The growing Saudi market proposes the biggest opportunity for SFC,” says Mr Al-Rumayyan. “With the increase in the number of companies looking to be listed on the Saudi stock exchange – the Tadawul – or looking to raise capital through the issuance of sukuk, there is an evident rise in demand for financial services.”

Most Innovative Investment Bank for Asset and Liability Management

Winner: HSBC

Highly commended: Deutsche Bank, Société Générale CIB

Formed two years ago, HSBC’s strategic solutions group within its global markets division is ideally designed to capture the wide range of opportunities thrown up by more complex regulation and funding conditions for banks, and the advent of Solvency II and other regulations for insurers. The Netherlands and Denmark are early adopters of Solvency II-style regulation, which includes the concept of an ‘ultimate forward rate’ (UFR) curve to discount future insurance liabilities. This affects their asset allocation and duration target in order to match their liabilities.

HSBC therefore put itself at the forefront of Solvency II implementation when it performed analysis for two Dutch insurers on how to reconcile swaption hedges to manage the difference between their economic liabilities and the new UFR calculations. 

“Insurers can either hedge their economic liabilities or their regulatory liabilities, not both simultaneously. So we look at how to hedge their economic exposures, which is what most Dutch insurers have chosen to do, and analyse the volatility of the regulatory liabilities on the other hand,” says Simon Hotchin, head of strategic solutions for Europe, the Middle East and Africa (EMEA) at HSBC.

In the banking sector, our judges were particularly impressed by HSBC’s work with Greek banks, advising them on how to regain access to foreign exchange swap markets at the height of fears the country might exit from the euro. The bank devised a strategy including innovative documentation and credit mitigants and longer tenor transactions to cut the risk of frequent roll-overs.

“We wanted something that would give us comfort on the transactions, but would also avoid liquidity constraints on our clients. By helping to improve their liquidity position, in the end we also reduced our own risks,” says Claude Goulet, head of EMEA institutional foreign exchange sales at HSBC.

The bank’s emerging markets footprint also enabled a series of unusual asset and liability management (ALM) transactions. These included arranging the issuance and cross-currency swap for an uridashi (Japanese retail investor) bond issued by a Middle Eastern bank denominated in Mexican peso. In Brazil, when the government granted a tax exemption to local banks for certain types of fixed-rate financing in Brazilian real, HSBC was able to become a sole provider and risk advisor to many banks by offering cross-currency and interest rate swaps alongside the funding.

“Our local knowledge and presence is vital to develop new ALM products in many emerging market regions. In the Middle East, there is complexity due to the non-netting jurisdictions, and in many markets you need to understand local regulations and accounting principles and to have access to regulators to enable these transactions,” says Guido Hebert, global head of rates structuring at HSBC.

Most Innovative Investment Bank for Bonds

Winner: Bank of America Merrill Lynch

Highly commended: Barclays, Citi

For banks with a deep market share in the US bond market, the next year is likely to be exciting. With the US recovery seemingly gaining strength, companies are increasingly willing to carry out mergers and acquisitions (M&A), which have been in short supply for most of the period since 2008. For the bond market, that can only mean more supply. And given the sheer demand for corporate debt among investors, it is supply that is likely to be lapped up.

“Barring big geopolitical disruptions, we expect a very robust level of supply over the next six months,” says Lisa Carnoy, head of global capital markets at Bank of America Merrill Lynch (BAML), winner of this year’s bonds award. “And in addition to refinancing deals, which have made up most of the supply in the year to date, we will start seeing quite a lot of M&A financings. We have the strongest pipeline of M&A financings that we have had at any time in the past five years.”

BAML will doubtless be among the banks best able to capitalise on this trend. It has shown its mettle in the past year in the global bond market and won mandates on some of the most innovative and highest profile deals going.

In May, it played a leading role on a $5bn inaugural bond issued by newly merged GlecnoreXstrata, the mining and commodities trading group. The transaction, which attracted $14bn of orders, included five tranches and saw the borrower achieve very low pricing – the fixed-rate three-year piece had a coupon of just 1.7%. “There were several attributes that resonated with investors,” says Ms Carnoy. “For one, they really like M&A-related deals. Also, the fact there were multiple tranches enabled investors with different areas of focus to participate.”

BAML was also mandated on the first dollar-denominated green bond from an Asian issuer, a $500m placement from the Export-Import Bank of Korea. A leading proponent of green bonds, the market for which is still in its infancy, BAML believes such deals will encourage other entities to issue. “If you hear how many entities speak about environmental issues being at the core of their mission, you would think it’s only a matter of time until they capitalise on the strong demand for green bonds,” says Ms Carnoy.

BAML’s other major deals included a $1.5bn additional Tier 1 bond from Spanish bank BBVA in April and a $950m subordinated bond from CCC rated HD Supply, a US industrial distribution company.

Most Innovative Investment Bank for Climate Change and Sustainability

Winner: Bank of America Merrill Lynch

Highly commended: HSBC, Rand Merchant Bank

Bank of America Merrill Lynch’s (BAML’s) myriad efforts in developing innovative products to address environmental issues has seen it secure this award for the third consecutive year.

Rather than approaching such matters as a box-ticking exercise, BAML has long believed that business and environmental objectives go hand in hand. This helps to explain why, in 2012, the bank exceeded its initial $20bn environmental business initiative – four years ahead of schedule. During 2012 alone, BAML committed more than $4.5bn towards underwriting, advising on and financing a number of transactions across its business lines that will help its clients move closer to a lower carbon economy.

Of particular note is BAML’s involvement in underwriting three groundbreaking green bond transactions during the first half of 2013, including Export-Import Bank of Korea’s $500m Green Bond, which is aimed at supporting South Korean businesses in generating carbon-free electricity, implementing waste management, and improving energy efficiency. BAML served as the only global investment bank on the deal. The other two deals were in serving as lead bookrunner for the European Investment Bank’s first euro-denominated €650m climate awareness bond and for a Massachusetts green municipal bond.

In helping to create a market for green bonds – senior debt obligations in which the proceeds are ring-fenced to support environmentally friendly projects – the bank hopes to spur billions of dollars in new capital towards low-carbon projects. 

“While the broad-based focus on green bonds has been a more tangible string to our bow over the past few months, we have been actively engaged in this market for a considerable time, particularly focused on those transactions from the public sector,” says Julia Hoggett, the managing director responsible for green debt capital markets within Europe, the Middle East and Africa at BAML.

“But now we feel that we should broaden the focus from the sovereign supranational and agency sector and broaden the scope of these bonds to the corporate space to enable dedicated funds to be directed to an even wider range of projects. We have been very much pushing on that front and we are working with other partners in the market to develop an open-source framework in order to maximise the future growth of the green bond market.”  

Meanwhile, in April 2013, BAML was lead left bookrunner on the $177m initial public offering (IPO) for Hannon Armstrong Sustainable Infrastructure Capital – one of the largest clean energy IPOs in the US in recent years and the first in the industry to utilise a real estate investment trust structure. 

“This may be the third year that we have won this award but we still feel there’s a lot more to do,” says Ms Hoggett. “Each year we develop new areas that we want to focus on and new ways of committing our balance sheet. The deeper you go into trying to genuinely connect the way you do business for clients with environmental, and indeed social, objectives, you find there is more and more to do and an ever greater rationale for focusing on it.”

Most Innovative Investment Bank for Commodities

Winner: Deutsche Bank

Highly commended: Société Générale CIB

The past two years have been difficult for commodities houses. Under pressure to reduce their balance sheets to meet Basel III capital requirements and with the physical trading by banks of raw materials coming under increased scrutiny in the US and Europe, many firms have opted to cut their businesses.

Deutsche Bank, which has long been one of the world’s leading commodities banks, restructured part of its business last year. Always keen to maximise efficiency and return on equity, Deutsche decided to move out of areas where client activity was falling and unlikely to return in the near future. Thus it cut back in carbon emissions trading and European gas and power, the latter being a business line that was very physical and thus cost-intensive.

But, unlike many of its rivals, Deutsche has also bolstered itself in areas where it sees plenty of future potential. It has hired more staff in the process, including listed derivatives specialists and a head of metals sales in the US. These will complement the four areas that are its core focus: metals and dry bulk, oil and agriculture, correlation and index, and North American gas and power.

Deutsche’s commitment to constantly innovate and find investment solutions for its clients has enabled it to come up with plenty of popular ideas in the past year or so. And not all of them have been for institutional investors. In August 2012 it launched a gold-linked investment product for retail investors, with denominations of €1000, through its German retail arm, Deutsche Postbank. “It allows retail investors, instead of getting very low interest on their deposits, to participate in the price of gold,” says Richard Jefferson, global co-head for commodities. “It’s a very simple structure and very appropriate for retail. It has been very well received.”

Louise Kitchen, Mr Jefferson’s co-head, says the product was an example of Deutsche’s commodities arm linking with all parts of the overall bank. “We are one product within the bank, but we are completely integrated,” she says. “We are not a silo and the bank’s sales teams cover clients across all products, be they for the institutional, corporate or retail market, offering clients full solutions and products including commodities as just one of the components.”

Among Deutsche’s other achievements, it developed the first short-term deposit collateralised by physical aluminium and, in the first quarter of this year, became the first house to offer electronic trading on long-dated metals contracts, allowing clients to trade up to six months for the first time.

Most Innovative Investment Bank for Equities and IPOs

Winner: Citi

Highly commended: Bank of America Merrill Lynch, Goldman Sachs

Citi’s global platform enabled it to be at the forefront of equity capital markets (ECM) across many regions in the past year. In the US, it was quick to spot the recovery in the housing market. Reacting faster than most of its rivals, it exploited strong demand from investors for more exposure to the sector and brought issuers to the market. In January, it helped to reopen the homebuilder initial public offering (IPO) market when it was sole bookrunner on a $268m deal for Tri Pointe Homes.

This led to other issues quickly doing deals, which Citi was heavily involved with. It was a bookrunner on TaylorMorrison’s $723m IPO in April and William Lyon Homes’ $250m transaction a month later. “We spotted a number of early equity trends and themes throughout last year and aligned our equity new issue focus accordingly,” says Tyler Dickson, Citi’s global head of capital markets origination. “A great example was our early read of the US housing market recovery, which allowed us to dominate equity new issue activity in the home building and real estate sectors.”

In Europe, where volumes in the past 12 months were lower than those in the US, Citi seized the opportunities provided by banks recapitalising. It was the leading ECM house by volume for financial institutions deals in Europe, the Middle East and Africa in the year to June 2013, according to Dealogic. Among its highlights was being a bookrunner on Commerzbank’s €2.5bn rights offering in May and VTB’s $3.3bn rights issue in the same month.

In Latin America, Citi has benefited from the rise in prominence of Mexico – thanks to its ownership of Banamex, the country’s second biggest bank – at the expense of Brazil, something caused by the former’s close ties to the recovering US and its structural reforms bearing fruit. This led to Mexico’s market share of Latin American ECM issuance increasing from 20% in 2011 to 31% in the first half of 2013.

Over the coming year, Mr Tyler expects that ECM issuance in the US, in particular, will be strong as the country continues its economic recovery. He also thinks that equity markets will benefit if the US Federal Reserve cuts its huge monthly asset purchases. “Given increasing confidence in the US economy and the changing outlook for interest rates associated with tapering, many investors expect equities to outperform bonds,” he says. “This should continue to drive strong demand for equity new issues.”

Most Innovative Investment Bank for Equity Derivatives

Winner: BNP Paribas

Highly commended: Barclays, Société Générale CIB

Tighter regulation of both bank balance sheets and the suitability of products for retail investors mean that the equity derivatives business is no longer so heavily focused on complex new structures. Instead, it has been an important year for innovation in the platforms behind the products. BNP Paribas has led the field in this area.

The bank recognised early that greater capital and liquidity requirements and reduced retail structured product activity would compress equity derivative margins. It responded by launching SmartDerivatives, an electronic trading platform, in September 2012. This gives clients pre- and post-trade information and efficient, real-time pricing and trading for products that might once have been considered too esoteric for this approach. It is also used internally to cut sales team expenditure.

“Our equity derivatives business started with retail structured products, then expanded toward the flow business of servicing asset managers and hedge funds. We realised that we needed to merge the two approaches, allowing clients to design their own structured product pay-off and with our SmartDerivatives platform allowing them to trade almost real-time, like flow-listed products,” says Olivier Osty, deputy head of global equity and commodity derivatives at BNP Paribas.

The bank has also continued to expand its offering on its SecurAsset platform, which separates assets held as collateral on equity derivative trades. One recent product, Optimaxx 4-8, offered clients the average of eight yearly performances of the Eurostoxx 50 index, with the protection of 100% collateralisation and the option of exiting after four years. 

“SecurAsset has given clients the capacity to tailor the issuer risk component in their investments and separate it out, either on the BNP Paribas name or on a third party,” says Mr Osty.

On the institutional investor side, the bank built a customised volatility-controlled index for a Japanese insurer to trade over the counter while posting equity collateral to improve the economics of the trade. This allowed the insurer to continue providing lucrative variable annuity products to its customers.

The bank’s peers clearly recognise the value of the BNP Paribas equity derivatives platform. In the past 18 months, the bank has taken on and continued to serve clients for thousands of products issued by Macquarie and Crédit Agricole as those two banks wound down their equity derivatives businesses. BNP Paribas was also selected as main market maker and swap counterparty for the equity exchange-traded funds business of €750bn asset manager Amundi.

“Our main utility comes from providing liquidity for larger over-the-counter trades that we can offset via the smaller electronic markets, such as plain vanilla listed options and retail structured products. There is a clear opportunity for us as some existing players exit the market,” says Mr Osty.

Most Innovative Investment Bank for Financial Institution Group Capital Markets

Winner: RBS

Highly commended: Citi, RBC Capital Markets

In 2012, RBS, winner of this year’s award, decided to restructure its financial institutions group (FIG). It wanted to deepen its engagement with FI clients regarding capital, especially in light of changing regulations and guidelines from rating agencies. It formed a team called Balance Sheet Advisory that was made up of three parts – hybrid capital and balance sheet solutions, liability management, and ratings advisory. 

“We felt that aligning the various parts of our FIG business would allow a more integrated offering to clients,” says Matt Carter, head of FI capital markets at RBS. “In the post-crisis era, there’s an intricate linkage between the dialogues about capital, assets, funding and liquidity.

“Being able to move quickly between the different aspects, rather than being siloed in our thinking, has been very important.”

The new approach has already started to pay off, with RBS improving its rankings in the FI-related league tables significantly in the first half of 2013. In that period, it ranked fifth among bookrunners on FI hybrid capital deals in Europe, the Middle East and Africa, according to Dealogic, a data provider. That marked a rise from 16th place for all of 2012.

Borrowers have liked the fact that RBS is pitching to them without a single-product focus. “We are not just engaging clients with product-focused, narrow pitches,” says AJ Davidson, head of hybrid capital and balance sheet solutions at RBS. “We are trying to provide them holistic solutions on both the liability and asset sides.”

Among RBS’s innovative deals this year was a simultaneous tender of existing debt and issue of a new bond for Dutch insurer Achmea in March. RBS was sole structuring advisor for the company, which tendered €133m of a €500m bond through a modified Dutch auction. That process was conditional on the issuance, which turned out to be successful, of a €500m 30-year subordinated note that complies with the EU’s Solvency II directive for insurers.

“Up to that point, we had seen very few liability management transactions from insurance companies,” says Mr Davidson. “It was a novel concept to launch a new issue and cash tender contemporaneously. But it was an approach that other issuers used shortly afterwards. It allowed Achmea to have much more flexibility in terms of pricing than it would have had in an outright exchange of instruments.”

Other highlights for RBS including being a lead manager in April on a $500m Tier 2 bond for Credit Bank of Moscow, the first to comply with Russia’s Basel III rules, and being a bookrunner on the first subordinated Tier 2 deal from the Middle East since 2010 (Abu Dhabi Commercial Bank’s dollar and Swiss franc bond in February).

Most Innovative Investment Bank for Foreign Exchange

Winner: Deutsche Bank

Highly commended: BNP Paribas, Citi

Perhaps more than any other area, foreign exchange (FX) has become a fiercely competitive battleground for technological innovation. In 2012, Deutsche Bank sought to step ahead of its rivals with the launch of the Autobahn FX 2.0 trading platform. This system is “a complete rewrite” of the original Autobahn, according to Deutsche’s global head of FX, Kevin Rodgers. It offers a number of groundbreaking features, including the first combined electronic and voice trade blotter, and the first app-based commentary and analysis tool that significantly reduces the time taken for clients to receive actionable market research and information.

“We wanted a customisable dashboard that allowed clients to take the modules that they wanted. The second priority was to build the whole system so that it was flexible, so that we can add in whatever features the customer needs. And behind the shop window, the pricing on all our products from spot FX to relatively complex derivatives has been automated as far as possible, so clients are not just getting a good user experience, but also first-rate liquidity provision,” says Mr Rodgers.

The suite of features that Deutsche can add to the system also includes some eye-openers. With Space, Deutsche has created the first electronic trading platform for non-deliverable forwards. Farm is a pricing engine for currency forwards that runs about 1000 times faster than previous platforms. And Nova is a currency options pricing engine that automates calculations of future volatility that were previously conducted manually.

This automation has allowed the bank to increase volumes by 25% in the second quarter of 2013 alone, even while reducing headcount. The streamlining helps the bank offset tighter margins on electronic pricing and the rising cost of regulation. The bank is also using technology directly to meet the challenges of new regulatory requirements around counterparty risk for derivative trades. The introduction of dbGrip, a platform to manage the credit risk of collateralised trades, has cut margin requirements and reduced the time to fulfil client orders.

“FX is not on the whole a hugely credit-intensive business, and currencies are not usually such a volatile asset class, but since the financial crisis we have had a strict focus to stay on top of what we call the secondary risks. We have a special secondary risks group led by one of the most experienced managers in the FX division,” says Mr Rodgers.

Alongside the growth of electronic FX, the bank is also expanding the range of bespoke FX services available in emerging markets. A forward currency transaction to help a Russian corporate hedge against a rising rouble introduced a European knock-out mechanism to protect the company if the rouble weakened instead. And in 2012, Deutsche transacted the first cross-border FX payment in renminbi under new Chinese regulations that greatly reduce the paperwork involved in such a trade.

Most Innovative Investment Bank for Inflation

Winner: Barclays

Highly commended: Standard Bank

More volatile nominal yields have made life difficult for inflation-linked markets in developed economies. But inflation hedging is still a valuable tool for many institutional investors and certain issuers in the utilities and real estate sectors. Barclays has long treated inflation as a discreet asset class, and this helped the bank to continue assisting clients even in the more complex market conditions.

“We have long seen inflation in a wider context, not just as a subset of the rates market. We have also had real stability in our team, remaining present for clients even when interbank liquidity in inflation is more constrained,” says Adam Law, Barclays’ global product manager for inflation.

In Australia, pension fund providers were struggling because inflation-linked bond markets in Australian dollars are relatively illiquid. Barclays devised the market’s first total return swap on an inflation index. In a similar vein, Barclays conducted the first Irish consumer price index (CPI) swap trade with a local pension fund, and helped a UK insurer to make the switch to swaps tracking UK CPI, instead of retail price inflation (RPI). Despite the UK government’s decision in 2010 to index pensions to CPI instead of RPI, a market for UK CPI swaps had been slow to develop.

“In these underdeveloped situations we have to create a market ahead of government issuance of linker bonds. Otherwise it can be a circular situation, because governments do not want to issue linkers until they know that the structural demand for inflation – or for CPI rather than RPI in the case of the UK – is there,” says Benoit Chriqui, head of European inflation trading at Barclays.

Innovation is also important because naturally inflation trades tend to be fewer in number, larger in size, long-dated, and heavily funded with back-loaded repayment profiles. Mr Chriqui says this makes it more difficult to recycle risk, but the bank is determined to find a way. 

“If anything, there is more work to do in a less liquid market since we need to make sure our clients are always able to transact. If we decline to trade because liquidity is low, we know the client will not be coming back to trade with us,” he says.

The importance of inflation as a product means it is integrated into Barclays’ global multi-asset portfolio analysis platform, Point. The use of this system allowed the bank to help a pension fund optimise its inflation hedging via US Treasury inflation-protected securities, creating a predictable inflation-protected monthly cashflow for the investor.

“It has been great to bring inflation into our wider analysis tools such as Point. And we are heartened that, even at a time when cyclical inflation is low, there is a structural increase in the number of clients needing inflation-hedging solutions,” says Mr Law.

Most Innovative Investment Bank for Infrastructure and Project Finance

Winner: HSBC

Highly commended: BNP Paribas, RBS

The past couple of years have been particularly challenging for the project finance industry, with prolonged periods of economic market uncertainty impacting upon deal and credit market volumes across the world. Despite this, HSBC has closed 52 project finance mandates with project volumes of more than $45bn across 19 countries between June 2012 and June 2013 and has continued to demonstrate its ability to originate, structure and execute innovative and value-adding transactions.

During the year, it designed unique construction risk mitigants on an energy project in Peru, tailored financial structures to reflect cyclicality of business in an aluminium expansion project in the United Arab Emirates and developed innovative swap structures on a power project in Bangladesh.  

It also advised and arranged several firsts for clients, regions, markets and sectors, including the first thermal power plant with non-recourse financing in the UK, the first full airport concession offered on a public-private partnership basis in Saudi Arabia, the first istisna-ijarah Malaysian ringgit-denominated sukuk issuance, and the first independent power project financed in Ghana – the $330m Takoradi II expansion.

“We consistently follow our top clients, often into the more complicated emerging markets, and use our global network to pull together all the strands of possible financing options to provide them with a comprehensive solution. Not just on day one, but hopefully at numerous milestones as the deal moves along the greenfield to brownfield continuum,” says David Gardner, managing director, global head of project and export finance, at HSBC. “For example, Ghana is not a straightforward market, but we were able to mobilise different strands of financing, including from investors outside the mainstream.” 

Indeed, HSBC’s position as a preferred and trusted advisor has been confirmed by repeat mandates from clients who have taken it across borders into new markets, for example, global power company AES, Saudi International Petrochemical Company and the Abu Dhabi Water & Electricity Authority.

Demand for its services shows no sign of slowing down: HSBC is currently working on 102 live mandates – 72 in an advisory capacity and 30 in an arranging capacity – with a total project value of more than $170bn across 38 countries.

“In the past, it was a lot easier to access financing – you could just go to domestic and international banks and borrow money at the lowest possible rates – but it is increasingly becoming more complex,” says Scott Dickens, managing director, global head of structured capital markets, at HSBC.

“So that’s where you need the mix of project finance advisory skills, capital markets expertise and balance sheet. You need to be able to offer a holistic product offering to effectively service your clients. Hopefully that’s one of the advantages that HSBC has. We’re very proud to position ourselves as the number one project bond player globally and it’s something that we’re going to continue to develop as we feel that it’s a vital initiative in order to get the mix right between bank and bond financing for projects going forward.” 

Most Innovative Investment Bank for Islamic Finance

Winner: HSBC

Highly commended: CIMB, Aktif Bank

In the 12-month period to June 2013, HSBC continued to push boundaries by opening up new markets and new opportunities in Islamic finance. The bank’s expertise and vision have been integral to its success in expanding the breadth and depth of Islamic investment banking deals.

HSBC acted as one of the lead managers and bookrunners on the issuance of the world’s first Tier 1 perpetual sukuk – a $1bn sukuk issued by Abu Dhabi Islamic Bank (ADIB). Its success can be measured by the fact that the final order book exceeded $15bn – making it 30 times oversubscribed from the initial benchmark size of $500m.

The structure, in line with Basel III requirements, raised its Tier 1 capital ratio to 19% from its previous 13.7%, and opens the door for Islamic banks to raise bank capital under Basel II and Basel III regulations. Prior to this, the only way for an Islamic bank to raise Tier 1 capital would have been through equity instruments, raising the bank’s cost of capital. It is also a groundbreaking transaction within the conventional space, ranking as the first Tier 1 instrument issued by any Middle Eastern bank in the capital markets.

“The ADIB sukuk was our most interesting deal because a number of the other deals pretty much followed a similar format in that they were senior unsecured transactions,” says Mohammed Dawood, global head of sukuk financing at HSBC.

“And the ultimate success of that issue is that – at 6.375% – it achieved the lowest coupon of a first-time issuer. It has served as a catalyst for change across the Middle East and north Africa debt capital markets, helping to broaden the product offering, and with other banks and corporates now actively looking to follow in ADIB’s footsteps.”

In March 2013, Dubai Islamic Bank, the United Arab Emirates’ largest Islamic bank by assets, launched a $1bn hybrid perpetual sukuk, which attracted $14bn in orders. 

HSBC also arranged and led the $250m Tier 2 sukuk for Bank Asya of Turkey – the first such sukuk outside of Asia as well as the first Tier 2 issuance by a Turkish bank. The sukuk consisted of the issuance of $250m resettable subordinated Tier 2 certificates. 

HSBC’s innovative Islamic structuring capabilities were also apparent in its structuring of a Rmb1000bn ($163.36bn) sukuk for Axiata Group. The sukuk allowed the issuer, whose telecommunications business model involves intangible assets, to innovatively use airtime vouchers as the underlying asset. It is also highly significant in ranking as the world’s first renminbi corporate sukuk, helping to open up a new investor base and currency option to sukuk issuers.  

It is also worth flagging up HSBC’s involvement as joint lead manager on the first 30-year sukuk ever issued – Saudi Electricity Company’s $2bn sukuk issued in April 2013. The success of the structure provides Islamic issuers globally with the potential to extend their issuance curves out to the 30-year mark, providing Islamic issuers with similar issuance options to conventional issuers. 

“Going forward, we see tremendous opportunities in project financing and project bonds,” says Mr Dawood. “We also see opportunities across more structured asset-based financing, which lends itself extremely well to Islamic finance. And we’re also going to increasingly be looking at Islamic corporate hybrid issuances.”

Most Innovative Investment Bank for Loans

Winner: RBS

Highly commended: Bank of America Merrill Lynch, HSBC

Banks across the developed world have come under plenty of criticism from governments and the public over the past few years for supposedly not lending enough to businesses. But it is often forgotten that one reason for a decrease in lending activity is the subdued demand for credit from companies that have been unwilling to take on leverage amid an economic outlook that has scarcely been anything but gloomy since 2008.

At the beginning of this year, syndicated loans bankers were predicting that unless mergers and acquisitions (M&A) picked up, volumes in their market would be fairly low in 2013. That has largely been borne out. As such, banks – who have been especially keen to deploy their balance sheets and lend to big companies – have had to be particularly innovative to win bookrunner mandates on the deals that have emerged. “Differentiation between banks is something that clients are looking at very closely,” says Jonathan Pughe, head of loan syndicate and sales for Europe, the Middle East and Africa at RBS, this year’s winner. “In a lot of the deals we have done, we started not by thinking about what the market could provide, but by thinking about what the client needed.

“Banks are trying to structure deals a little more bespoke than usual.”

A good example of that was a $17bn loan in June for commodity trader and miner GlencoreXstrata. The deal, used to refinance the debt of the two companies after they merged in May this year, involved a ‘reverse yield curve’ that allowed the five-year tranche to be priced with a lower margin than the three-year piece. RBS, the global co-ordinator for the loan, thought the innovation would prove popular with lenders, and it was right. The five-year tranche was aimed to a large extent at those wanting to be core relationship banks of the borrower. It was structured in such a way that, despite the low headline margin, it is unlikely to be drawn because it has high utilisation fees. 

“That allowed us to treat it very much as a backstop facility that’s unlikely to be used, and thus make the headline margin lower that on the three year piece,” says Mr Pughe. “It was very much designed for the specific requirements.”

Another highlight for RBS was a €600m forward-start facility for Nokia Siemens Networks (NSN), on which it was a bookrunner. The deal came as a relief to NSN, which had initially wanted to issue a high-yield bond to refinance its debt, but which had to change tack when the bond market became volatile. The forward start (which enables borrowers to lock in financing to replace existing debt well in advance of its maturity) gave NSN the breathing space it needed to assess its other options.

Most Innovative Investment Bank for Mergers and Acquisitions

Winner: Bank of America Merrill Lynch

Highly commended: HSBC, Rothschild

Bank of America Merrill Lynch (BAML) has shown itself to be a leading mergers and acquisitions (M&A) house in the past year. It was an advisor on some of the biggest and most complex transactions over that period, and not just in its US stronghold, but on deals involving European and Asian companies too. For Steve Baronoff, global head of M&A at BAML, increasing the bank’s revenues and market share in those regions is a key aim. “Our goal is to continue to grow our market share outside of the US to have a more balanced business globally,” he says.

In the past year, BAML has made progress towards that ambition. It was one of two advisors to commodities trader Glencore when it bought Canadian grain trading company Viterra for C$6.1bn ($6.1bn), a deal completed last December. The transaction was complicated by Glencore not wanting all of the target’s assets. Thus BAML helped Glencore reach an agreement, before its acquisition had been completed, with two other agribusinesses – Agrium and Richardson International – for them buy C$2.6bn of assets from Viterra.

BAML was also an advisor on the largest ever Russian M&A transaction. It worked with state oil firm Rosneft on its $56bn cash and shares takeover of TNK-BP, a Russian joint venture between BP and a consortium of investors called AAR. The deal, announced late last year and completed in March, was complex because of the need for Rosneft to negotiate with each joint-venture partner separately. AAR was paid solely in cash, while BP was paid $17bn in cash and with 12.8% of Rosneft’s shares, which were valued at $9.4bn.

Another high point for BAML was acting as a financial advisor to Japan’s Daikin Industries, the world’s largest maker of air-conditioners, on its $3.7bn acquisition of Texas-based Goodman Global, as part of its ambitions to expand in the US. The deal, announced last year August, exemplified the increased willingness of Japanese firms, many of which have plenty of cash on their balance sheets, to venture abroad. BAML hopes to be among the M&A houses benefiting from that trend in the next few years.

Despite its growing clout outside the US, BAML has continued to perform strongly in its home market, including advising food giant Heinz on its $28bn takeover by investment firms Berkshire Hathaway and 3G Capital. Mr Baronoff is confident that despite the rapid growth in many emerging markets, the US will continue to provide a large supply of M&A. “The fact is the US is a massive and relatively predictable market,” he says. “It has very clear regulation and deals are generally financeable. With even 2% or 3% growth a year, companies continue to want to invest in the US. We are seeing a number of inquiries around that.”

Most Innovative Investment Bank for Prime Brokerage

Winner: Citi

Highly commended: Bank of America Merrill Lynch, Deutsche Bank

Over the past year, Citi’s prime brokerage team, which spans 100 countries, has enhanced its offerings to help clients with their trading, financing and operating needs. A key focus has been the expansion of its capabilities through the closer integration of its prime finance, delta one and securities lending businesses, a development that has quickly started to reap benefits. “We now have one of the best platforms [on Wall Street] in terms of technology and clearing capability,” says Nick Roe, Citi’s global head of prime brokerage. “That has meant that our business has grown in client and revenue terms.”

Citi has built its delta one arm – which deals with derivatives that move almost identically with their underlying assets – by recently establishing a joint venture between its prime finance and equities businesses. Over the past 12 months, this has been strengthened by new hires and more products being offered to clients, including so-called style-factor swaps and thematic custom baskets. 

The combination of the delta one and prime finance teams has also helped Citi to bolster its securities lending abilities.

Another big development for Citi was becoming the first international prime broker to enter the Swedish market. Historically it has been dominated by local firms, given that prime brokers have had to operate through Swedish depositories. But Citi got approval from Sweden’s regulators to offer depository and prime services locally, thanks to the establishment of a joint venture between its prime finance and securities and fund services business.

A major breakthrough came in September last year, when Citi was awarded a mandate from Brummers and Partners, Sweden’s largest hedge fund manager, to provide depository, custody and prime brokerage services to one of its recently launched funds.

The next year is likely to throw up plenty of challenges for prime brokers, although Citi, which has shown its ability to adapt to market changes in the past year, is likely to be among the house best able to cope. The biggest issues will be to do with capital, balance sheet and liquidity. 

“Basel III and the supplemental leverage ratio mean that prime brokerage businesses, which typically use a lot of balance sheet, have to be as efficient as possible in the utilisation of capital,” says Mr Roe. “They need to get the maximum payback on that capital.

“The limitation on balance sheet usage is going to have a big impact on a lot of broker-dealers and how they do business with their clients. Historically, clients have been able to get cheap financing from prime brokers. That probably won’t be the case going forward as regulatory requirements are increasing prime brokers’ operating and funding costs.”

Most Innovative Investment Bank for Restructuring

Winner: Blackstone

Highly commended: Houlihan Lokey, Rothschild

By its nature, every restructuring deal is bespoke, and innovations are frequent. In recent years, there has been an added dimension – a range of jurisdictions including Spain, France, Germany and Sweden have passed legislation designed to modernise their insolvency regimes. This means that relocating a company’s ‘centre of main interests’ to carry out a restructuring in established insolvency jurisdictions such as the UK and US is no longer always the natural first choice for advisors. In the past year, Blackstone has established a strong record of testing some of the new legal regimes elsewhere.

“We are agnostic on jurisdiction; our focus is on where we can find new money, equitise the debt and avoid the risk of hold-out investors most effectively,” says Martin Gudgeon, head of European restructuring at Blackstone.

The firm advised iron ore mining company Northland Resources on a restructuring that treated debts of more than $400m, the largest to date under the new Swedish legislation. The company’s core asset was an uncompleted project that needed $330m additional capital, and Blackstone realised completion was essential to achieve any kind of recovery for creditors. The new money had to come in senior to existing bondholders, and without carrying the risk posed by falling commodity prices.

“In this instance, Swedish legislation provided us with two advantages over the UK. First, 90% of restructurings involve financial liabilities such as bonds, but Northland had significant trade claims from construction suppliers, and Swedish law allowed us to stay those claims. Second, it was also easier in Sweden to arrange debtor-in-possession financing with a floating charge over inventory that was prime to the existing lenders,” says David Riddell, a senior managing director in Blackstone’s restructuring group. 

Mr Riddell anticipates more work coming from other second-tier commodity producers and traders, especially in the iron and steel sector, as demand from Asia softens and prices fall. Blackstone is also currently testing the new ‘shield’ insolvency legislation in Germany with the €4.8bn restructuring of real estate company IVG Immobilien.

Further afield, Blackstone broke new ground with the December 2012 extension of a $1bn sukuk issued by the United Arab Emirates’ Dana Gas. This was partly transformed into a $425m sharia-compliant convertible bond that settles in cash if the shares fall below par value, to comply with local law. The deal was the largest successful restructuring of a sukuk issued by a fully private sector entity in the Middle East to date. 

“The deal required no government backing or investment, the increase in borrowing costs was limited, and there was no further dilution to the existing shareholders who kept control, while bondholders received par, so everyone wins,” says Mr Gudgeon. The firm is now advising Brazilian oil company OGX on an overhaul of its capital structure.

Most Innovative Investment Bank for Risk Management

Winner: Citi

Highly commended: HSBC, RBS

In the wake of the financial crisis, Citi has consciously striven to build a business focused on client solutions, an area that was not a traditional strength. New regulations and funding challenges all established a fertile ground for creative thinking. But this is not about rebranding the bank’s structured product sales teams, it is about using simpler products to help clients navigate complexity, says Andres Recoder, Citi’s head of markets for Europe, Middle East and Africa.

“This is a business originated at senior management levels – sometimes the C-suite, but mainly the operational heads below that, such as the asset and liability managers or treasurers. That level has to be targeted by people who understand the client’s business model and their regulatory and accounting challenges, and who are driven to close transactions. And you cannot just present as the solutions team without having institutional connectivity to the client on the basics, you need the flow relationships,” he says.

On that basis, Citi has plugged its risk management advisory into its markets business, putting together a team of multi-asset salesmen backed by structuring desks, all of whom have good knowledge of the bank’s complete capabilities. The resulting deals can cut across several asset classes. One of the more striking was the provision of financing to peripheral eurozone corporates and financial institutions, backed by an equity derivative that gave Citi collateral in form of the corporates’ strategic equity stakes in less challenged economies. 

“It is difficult to retain the competitive edge servicing large clients without committing balance sheet, but this needs to be done in a much more efficient way, in markets that have become less liquid. Having built a war-chest of dollar liquidity, it is useful to deploy that in Europe where dollar funding is needed, while maintaining discipline by accepting uncorrelated collateral,” says Mr Recoder.

The bank also showed the breadth of its emerging markets franchise in a series of novel hedging deals, including a long-term currency swap in Costa Rican colones, and the first fund with US equity underlyings that could be purchased onshore in Brazilian real for Brazil’s growing high-net-worth market. Citi has also responded to the needs of European financial institutions clients to manage the risk of net interest margins that are grinding ever tighter. In 2012, the bank used its Prism platform that allows clients to manage trading and confirmation while also matching hedge accounting treatment automatically, to enable a European bank client to manage its long-term government bond repo transactions in the most cost-efficient way possible.

“The emerging markets are presenting new opportunities as clients become more sophisticated, but the cyclical themes in developed markets are just as important,” says Mr Recoder.

Most Innovative Investment Bank for Sovereign Advisory

Winner: Rothschild

Highly commended: HSBC, Lazard

Today, ever-greater importance is being placed on expert, impartial advice in response to the increasing complexity of the financial markets and growing concerns around conflicts of interest. In 2012, independent advisers had a 26% share of the overall advisory fee pool compared to only 18% in 2008.

But while the pool of work may be growing, Rothschild remains the only independent advisory house with a truly global footprint – able to draw on the expertise of its 900 or so bankers across 40 countries. Consequently, it has played an invaluable role on a variety of projects that have stretched across a number of geographies over the past year.

“Together, our deals [demonstrate] the breadth of our sovereign advisory work and the trust that our sovereign clients place in us,” says Mark Walker, head of sovereign advisory at Rothschild.

“In our most recent sovereign transactions, Rothschild has assisted governments, including those of Cyprus, Portugal, France and Spain, in repairing and strengthening their financial systems, often under the most trying circumstances in the face of systemic threats. And we have also helped governments around the world attract private capital to projects of national importance, for example, the governments of the UK, Israel, Australia and Malaysia.”

Central to many of these deals was a coupling of proven financing techniques with innovative solutions. For example, Rothschild advised the Portuguese Ministry of Finance on its €6.65bn injection of core Tier 1 capital into three of the country’s banks – Caixa Geral de Depósitos, Banco BPI and Banco Comercial Portugues.

The deal involved a combination of government subscribed core Tier 1 instruments and private capital raising to meet the capital requirements for Portuguese banks.

The innovative elements of the transaction were apparent in the structuring of restrictive voting shares, but with priority dividends – allowing for required capital injections and limited state intervention where appropriate, while protecting taxpayers’ interest as well as maximising the potential for private capital raising. In this way, Rothschild overcame the key challenge of structuring the deal in a way that minimised state ownership but preserved the state’s right to take control of the bank under specific circumstances.

“Helping governments confront the crisis in Europe, and the eurozone in particular, demands a deep knowledge of financial systems and the related regulatory framework, an innovative approach to sovereign debt, the exercise of delicate judgement and the trust and respect of the European and international financial institutions,” says Mr Walker.  

“Over the next 12 months, we believe there will continue to be a demand by governments, particularly in Europe and Africa, for sophisticated and innovative financial advisory services. The opportunities will include continued attention to strengthening financial systems in Europe to support economic growth, raising finance for governments in difficult markets, and the exploitation of natural resources in a way that best protects national interests and patrimony for the benefit of the citizenry at large.”

Most Innovative Investment Bank for Structured Finance

Winner: Deutsche Bank

Highly commended: HSBC, RBS

Even after structured finance earned its reputation as a villain of the financial crisis, Deutsche Bank kept faith with the product, retaining it as one of four business lines in its markets division alongside equities, fixed income and emerging markets. For Elad Shraga, Deutsche’s head of structured finance, what defines the asset class is not complexity, but the customised nature of the business, creating securities to fulfil the financing needs of clients or the bank. What has undoubtedly changed is that securitisation as a pure yield play for banks has been replaced by what Mr Shraga calls a “toolkit that disseminates risk and connects capital with those who need it”.

Deutsche Bank has scaled back in the most vanilla, liquid businesses such as credit card securitisations. Instead, its focus is on more entrepreneurial areas such as rent-to-own property financing and the commercial real estate (CRE) development market that needs careful analysis and innovative approaches to revive and reshape the much-depleted commercial mortgage-backed securities (CMBS) market. In the past year, Deutsche has arranged the first European multi-property securitisation since the crisis – the €754m Vitus Immobilien deal – and the first European unrated CMBS, a five-year £380m ($607m) deal for Chiswick Park. 

“We are just about the only major European CMBS business now, with at least five times the staff of our nearest competitor. With CRE reviving in the US, we felt there had to be a market for CRE financing in Europe, so we wanted to make it happen, to convince sponsors that financing will come if they buy the asset,” says Mr Shraga.

That confidence is understandable, given that commercial properties are essential infrastructure, financing them is a natural inflation hedge, and pension funds and insurers buy in scale if they buy. The market is beginning to justify Deutsche’s commitment, with volumes doubling in each of the past two years, and set to double again in 2013.

The bank is also combining its structuring skills with its expertise working in stressed or distressed assets. In Australia, Deutsche engineered the first ever CMBS of assets in receivership, enabling the administrators of a bankrupt mortgage provider to begin repaying creditors immediately, while giving investors the comfort of being able to select what assets went into the securitisation pool. 

Mr Shraga is anticipating more activity in China, as bank balance sheets there come under pressure. In the second half of 2012, Deutsche arranged the first dollar securitisation of non-standard Chinese assets, in the form of $250m issued by Chinese transport company Seaco, backed by container leases.

“Our business overall in Asia is quite local markets-oriented, and we feel that bridging the differences between local knowledge and international skills can generate a lot of benefits for everyone,” says Mr Shraga.

Most Innovative Investment Bank for Structured Investor Products

Winner: Société Générale Corporate & Investment Bank

Highly commended: Barclays, BNP Paribas

As confidence returned to the markets over the past year, investor appetite for structured products began to revive. But some changes made since the crisis are permanent. New regulations drive banks to distribute the risks in their books as comprehensively as possible. The cross-asset approach taken by Société Générale Corporate & Investment Bank (SG CIB) has become increasingly well suited to the current environment.

“We understood at least two years ago that our business in the future would be about risk intermediation and transformation, and that meant every kind of risk, including liquidity, credit, volatility, dividend and the like. That meant finding buyers and sellers within our client base anywhere in the world, potentially very different types of clients to sit on opposite sides of the trade,” says Marc El-Asmar, head of sales for cross-asset solutions at SG CIB.

That distribution approach has included greatly expanding investor access to credit assets. SG CIB arranged the distribution to the Swiss branch of a Portuguese private bank of a structured product based on a syndicated loan to a large Portuguese corporate. A simple structure gave the product a higher yield in return for investors accepting a zero recovery in the event of default, providing private investors with access to the European loan market that was previously reserved mainly for the banks themselves. 

In a further innovation designed to help private investors benefit from the changing European bank funding landscape, SG CIB provided the French bank’s cheap funding costs to leverage higher yielding deposits with a number of banks in Spain. This also helped the Spanish banks to attract liquidity without paying excessively high funding costs. 

The equity market rally has improved appetite for structured products with equity underlyings, but investors are closely watching the turn of the US interest rate cycle. Mr El Asmar says SG CIB has maintained a constant dialogue with institutional and private clients to discuss the impact of rising rates on structured product payouts. These conversations have helped the bank redesign some of its equity products to preserve decent returns while meeting client concerns about the timing of market moves. SG CIB adapted the classic auto-call product – which locks in gains above a certain level for investors – with a put option. This was designed to resolve the problem of investors missing out on further gains above the auto-call level.

“New regulations such as the EU’s Prospectus Directive present new challenges. We want to comply with those regulations while retaining flexibility for clients. That requires investment in human resources and adapting our platform, and we are making new hires in the solutions business while some of our competitors exit the market,” says Mr El Asmar. 


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