The head of European investment banking and debt capital markets at Barclays Capital tells Geraldine Lambe why BarCap’s business continues to boom despite the debt party being almost over.
Those wishing to take a little lustre off Barclays Capital’s shiny success in the past few years have pointed habitually to the constraints of its debt-focused model. When the debt party is over, detractors say, the firm’s business mix will not look quite so clever. John Winter, BarCap’s urbane head of European investment banking and debt capital markets, gives that slur very short shrift. “The so-called debt party is pretty much over – just look at the decline in corporate bond issuance – yet our business is still booming. We just keep finding different opportunities; different ways to leverage what we have to offer,” he says.
Some of the key things BarCap has to offer, says Mr Winter, are the synergies that exist between the bank’s business lines, combined with the relationships and balance sheet of the corporate bank underlying them. “Building our business successfully has been based on organising the bank’s operations in a constructive and creative way, and capitalising on synergies between product and client groups. The ability to really leverage the entire bank is driving a lot of opportunities,” he says.
Integrated structure
Mr Winter says that integrating investment banking within BarCap’s overall origination business (as symbolised by his own role) is important. “It says clearly that we operate as one team, with one incentive structure. This leaves us free to focus on originating and executing deals rather than worrying about how to account for the profit and loss.”
To illustrate the synergies, Mr Winter cites the co-operation between BarCap’s real estate, financial sponsor coverage and leveraged finance. In a deal taking place in Germany, Barclays is working with a private equity firm in an acquisition of a large chunk of real estate. The portfolio will be partially financed with commercial mortgage-backed securities (CMBS) that the bank can place in the market via its CMBS conduit.
“The financing package is more complex but is as efficient as a European medium-term note programme,” says Mr Winter. “We’ve got the financing pipeline already in place and can move quickly. The ability to connect the dots like that is a powerful story when pitching for business.”
Shifting resources
Barclays is not alone in its push towards CMBS and real estate. Many banks have recently shifted resources away from increasingly commoditised businesses and towards more fee-generative assets classes such as CMBS, real estate, whole business securitisation and other principal finance deals in which banks keep some of the risk on their balance sheet and the margins and structural innovation are greater.
BarCap’s CMBS conduit was established last year when it scored a coup by hiring Lynn Gilbert, Christian Janssen and Natalie Howard from Morgan Stanley. Mr Winter says that, fuelled by Barclays’ real estate lending relationships, the “scale of opportunities” has been bigger than even the bank had expected. BarCap will, therefore, continue to build the platform. “We will invest actively where we think there is still growth potential, and we will hire the specialist skills that we need,” Mr Winter explains.
“A lot of these areas are increasingly specialised. For example, the CMBS conduit demands a broad range of expertise, such as the ability to originate, service, monitor and manage the collateral. We have, therefore, had to build a comprehensive group that can support every element of these transactions.”
Pioneering deals
Like the CMBS transaction, other opportunities in Germany dovetail with Mr Winter’s vision for the bank’s synergistic structured finance/leveraged finance/private equity machine. He says the bank has been a “pioneer” in Germany. In November 2004, it was the first to do a tenanted residential real estate securitisation for Hallam Finance. And this May it was one of the financiers behind the €7bn acquisition from Viterra (part of utility group E.ON) of a portfolio of 150,000 flats by a subsidiary of Terra Firma, former Nomura banker Guy Hands’ private equity firm.
“BarCap was the only bank to be financing all three consortia competing for the deal,” says Mr Winter.
Why is there so much activity in German real estate securitisations? Is it simply a case of Germany selling the family jewels? Mr Winter says a virtuous circle has been created. German companies and municipalities are disposing of large amounts of relatively cheap real estate assets: for example, the City of Berlin wants to sell residential properties to the tune of tens of billions of euros. At the same time, there are private equity firms with the risk appetite for the right assets, and the financial tools available to price and execute transactions are now very mature.
Attractive finance options
“Private equity firms have the confidence to acquire these types of assets and the financing techniques exist to value them. Securitisation, for example, helps the participants to analyse the quality of the cash flows that will finance a transaction. At the same time as the financial technology has improved, the market conditions are compelling. Private equity firms have access to attractive financing options and are looking for cheap assets, while German real estate assets are looking very attractive in an environment where other real estate assets are relatively expensive,” says Mr Winter.
Mr Winter is not perturbed by so many investment banks chasing the same real estate assets, nor is he worried that the supply will soon run out – he thinks there is another three to five years of increasing activity in German property. He argues that those with an innovative approach will always find the business: “There are always assets that can be turned around or restructured: one person’s non-performing asset is another’s investment opportunity. Just as several years ago people couldn’t see that pubs were inexpensive assets when Guy Hands identified an opportunity, many today can’t see why anyone would want to buy German real estate.”
Pfandbrief activity
BarCap has broader ambitions for its German business outside the private equity and structured finance areas. It has put considerable effort into building its pfandbrief franchise and its relationships with German corporates. While corporate issuance may not be as stellar as fixed income bankers would like, BarCap has muscled its way into some high-profile deals. In March, it was a joint bookrunner on DaimlerChrysler’s $1.5bn, two-tranche global bond.
Barclays has also upped its game in the public and sub-sovereign sectors. In January, it was the only non-German joint bookrunner in Land Niedersachsen’s €1.5bn, 10-year benchmark bond – a transaction, predominantly marketed locally, that highlighted the bank’s ability to place paper in Germany.
And Barclays continues to prove its credentials in the financial institutions group (FIG). The €750m lower Tier 2 subordinated 10-year issue it carried out in November for Volkswagen Bank was the first ever subordinated bond by a captive auto finance company.
“FIG tends to be the engine of capital markets business in an investment bank,” says Mr Winter. “And it will always be significant area of focus for us. We see a lot of exciting opportunities in areas such as the insurance sector, covered bonds [BarCap was a joint bookrunner for Hypothekenbank in Essen’s €1.5bn jumbo pfandbrief in March] and in Tier 1 capital, where we have a reputation for innovation.”
Risk management opportunities
Another area of growth for the bank is commodities-related risk management. Mr Winter says more companies are expected to anticipate the indirect kinds of commodity risks they will face – such as fuel price rises – and to manage such commodity risk at a more strategic level. Responsibility for more types of risk management is, therefore, slowly moving out of the operational parts of the business and into companies’ finance operations. This is another opportunity for BarCap.
“As, for example, commodity-type risk management moves into the finance department, our relationship managers can work with the commodities team in a very joined-up way and approach the finance department with a strategy on how to better manage such risks. The whole risk management dialogue is booming,” says Mr Winter.
The same is true in the private equity world, he says, where FX and interest rate derivatives specialists are very involved in private equity deals. If a financial sponsor is buying an asset with regulated cash flows and interest rates rise, then the cash flows may be worth less. “You are never too far away from a risk management discussion in this business,” says Mr Winter.
That is why it is crucial for the bank to be integrated – there is no room in today’s investment bank for private fiefdoms. Businesses and clients overlap because few business lines work in isolation from each other. This may be why Mr Winter is so coy about discussing the size of a particular area, such as real estate. He says: “It’s difficult to state the total size of a particular area such as real estate because it begs the question: do you count the loan, leveraged finance, credit, bond, derivatives and securitisation professionals who work together on the specific deal?”
CAREER HISTORY:
2001: joined Barclays Capital as head of European investment banking and capital markets
1996: joined Deutsche Bank as head of European debt capital markets
1992: moved to Merrill Lynch in London as head of German debt capital markets
1985: joined Merrill Lynch in derivatives marketing
Holds a BA in economics from Carleton College, where he is a member of the board of trustees, and has an MBA in finance from New York University.
