Home and away
BBVA and Santander have had a pretty enviable year in Spain, managing to steer clear of some of the bigger market pitfalls, and making up considerable ground on some of their European rivals in key businesses. With the former the stronger domestically, and the latter focusing its attention abroad, the pair look like excellent examples of how to execute two distinct banking strategies. Hardeep Dhillon reports.
BBVA has emerged from the financial crisis with a solid profile and a continued willingness to support its clients through lending. The Spanish bank’s debt capital markets division delivers integrated global funding to corporate clients, including both loan markets and fixed income, incorporated and co-ordinated under the head of debt capital markets, Anselmo Andrade.
The bank’s high rating of Aa2, AA and AA- by Moody’s, Standard & Poor’s and Fitch respectively, underpin the strengths of the loan markets division. “BBVA’s strategy is predicated on establishing long-term relationships with clients and we are committed to supporting them by structuring and arranging their financial needs,” said Andrade. “Achieving a top league table position is important, but it should be the consequence of excellent customer relationships.”
The fixed income division has expanded it distribution capabilities, with international sales coverage growing from Southern Europe to Central Europe and Scandinavia. It has unparalleled leadership in Spain across all sectors, and this year consolidated its leadership in its domestic capital markets with a 12% global market share. In Europe, BBVA has more than doubled its market share from the previous year, with an underwritten volume that is three times higher.
BBVA has shown great flexibility to adapt its product types and sector coverage as the market has evolved. The absence of securitisation, subordinated debt, structured products and covered bonds in the first half of the year was offset by a boom in public debt. “One of the features of the crisis is that capital markets activity has pivoted more on local demand, so our target was consolidating leadership in Spain becoming the reference for Spanish issuers across all the products range,” said Andrade.
In Spain, BBVA has strengthened focus on 2009’s highest-growth segments, such as public sector or government guaranteed bonds, becoming the leader for both in public issues and private placements. In Europe, activity has been focussed on corporates, with a client-driven strategy closely coordinated with corporate banking and loan markets.
Transactions have been more profitable as a response to the increasingly challenging market conditions, said Andrade. In the public sector, higher fees have come along wider issuance margins and more standardised fees have been set for new asset classes, like government guaranteed bonds. There is a higher fee discrimination for different ratings, tenors and volumes.
By product, the most remarkable growth in fixed income volumes and profitability has been the public sector, including sovereign issues, state agencies, regions and municipalities. This has been driven both by widening margins and the increase in public institutions’ funding needs. In Spain, this segment accounted for €33bn by September 2009, a doubling in volume over 2008. Financial institution GGBs account for an average of 45% of total financials issuance in Europe and 60% in Spain.
Bond issuance from corporates has grown both by volumes and number of deals, with a sizeable number of inaugural issuers entering the market. Total 2009 European corporate issuance already stands at €250bn, and is expected to exceed €300bn by year end, showing a 70% increase versus 2008.
Corporate activity has been driven by a pre-financing strategy this year: many well known European names have already financed much of their 2010 financial needs, said Andrade. “We do not expect corporate issuance to keep the same pace along the fourth quarter and we foresee new issuance to be more selective and opportunistic, to benefit from improved financial conditions and demand niches,” he said.
At the beginning of this year, financials activity was limited only to government guaranteed transactions, but the market has evolved to a point where banks are currently able to sell unsecured and even subordinated debt. The covered bonds market has resumed strongly, with financials gradually taking market share from the GGBs as the financials’ safe-haven asset. “In Spain, we expect the cedulas hipotecarias market to surge, helped by the spread tightening and market appetite,” said Andrade.
Prominent transactions for BBVA in the loan markets include Enel’s €8bn facility, Iberdrola’s €5.3bn loan, Grupo Ferrovial’s €3.3bn refinancing, €3.28bn for Endesa, €2.2bn refinancing for SES and the refinancing of CEMEX. In fixed income, BBVA has lead managed Volkswagen’s €3bn dual-tranche, Enagas’ inaugural €1bn dual-tranche and Telefónica’s €2bn offering. In the public sector, BBVA has issued two deals of €7bn each for the Kingdom of Spain, two €2bn bond transactions for ICO and offerings for Comunidad de Madrid (€500m) and Generalitat de Valencia €850m.
Financials issuance includes €3bn of BBVA’s senior benchmarks and a €1.25bn cedulas hipotecarias for Banco Popular. BBVA has been bookrunner on the majority of three-year GGB transactions from Spanish financial institutions, including benchmark issues by Banco Popular, Banco Pastor, Caixanova, Cajamar, Banco Popular, Unicaja and multi-issuer CEAMI.
BBVA’s M&A advisory franchise leads the Thomson Reuters rankings in terms of value of transactions and announced deals in Spain in 2009. The bank has worked on the merger between Ferrovial and Cintra, the sale of Cintra Aparcamientos, Enel’s acquisition of a 25% stake in Endesa and Acciona’s purchase of Endesa Renovables.
“BBVA’s strategy in corporate finance is supported by its unparalleled knowledge of Spanish corporates and access to decision makers, our broad presence in Latin America, our unique knowledge of the credit markets and the ability to help our clients with the financing,” said Mario Pardo, head of corporate finance at BBVA.
In the last year BBVA has also reinforced its leadership in the financing of transport infrastructure worldwide. It worked on a range of projects, such as the €1bn enlargement of the M25 in the UK, the €480m enlargement of the A5 highway in Germany, the A2 highway construction in Poland and the €112m Mogan project in Spain. BBVA has also designed a €66m financial plan for the construction of several schools in the Spanish province of Cantabria, provided funds to develop ground operations for high-speed rail networks in Spain, and led the financing for a number of hotels across Europe and an office complex in Paris.
Santander has been a very liquid bank in not so liquid markets this year and shown that it is an institution with a sturdy balance sheet and a strong capacity to raise funds. The bank has invested steadily to improve its capabilities since 2007 and even during the credit crisis continued to conduct business with clients.
An increasing number of clients are now recognising the immense benefit of having long-term and close relationship ties with certain banks, a trend that perfectly suits Santander. Though not ubiquitous in all markets, it is continuing to reinforce relationships within its existing client franchise through its willingness and capability to provide credit. Strong customer focus is also evident with the bank’s investor base, by servicing clients’ needs, tailoring solutions and ensuring all transactions have undergone stringent risk analytics and quality checks.
Santander has adapted products to meet the demands of the investors and the market and has been able to issue transactions throughout the course of the last 12 months, said Ignacio Domínguez-Adame, head of global credit markets at Santander. Having a healthy balance sheet has played a prominent role in being able to provide bridge financing within the capital markets. The bank is more inclined towards the cross selling of the different products it offers within the global capital markets as this brings in profitably and a regular source of business.
Despite the massive drop in M&A activity, Santander has been involved in a host of blockbuster M&A financings and a range of solutions across equity and debt capital markets. The bank helped fund Enel’s €8bn purchase of a 25% stake in Endesa, Pfizer’s $63bn acquisition of Wyeth, and Roche in raising €16bn of bonds in Europe and US$16bn of debt in the US market to finance its US$42bn takeover of Genentech.
Santander also helped finance InBev’s US$52bn purchase of Anheuser-Busch, worked closely with Gas Natural on its US$24bn bridge financing for the purchase of Union Fenosa and was one of several banks to extend a €10bn credit line to Porsche.
Santander seems to have gradually moved beyond the Iberian capital markets in the last 24 months and the vast majority of its business is now being generated from areas outside of Spain. The firm has benefitted from more clients issuing globally in the US capital markets and is also looking to strengthen prominent positions in Brazil, Mexico and Chile.
Santander, which it said targets profitability, not rankings, does not to put too much emphasis on league table standings. However, the bank’s consistent rise provides strong evidence that the bank is employing a successful and, more importantly, the right strategy, said Domínguez-Adame. In the European corporate bond rankings, Santander was placed 30 in 2007, 16 in 2008, and reached number ten for the first half of 2009. "The bank has played to its strengths, a solid credit rating and balance sheet, and this has enabled Santander to capture market share and gain ground on its competitors over the last few years," said Domínguez-Adame.
The general improvement in the market this year has resulted in record primary market volumes in European credit, surpassing €200bn of issuance. Some in the market are already looking forward to what 2010 might bring. Further improvement and stabilisation of market conditions could lead to rising demand for lower rated deals in the Triple B range, or even below investment grade, depending on the issuer. “It will be hard for the market to maintain current issuing levels as many firms are demanding less credit than last year,” said Dominguez Adame. “Though I do not see spreads tightening back to 2007 levels, lower rated corporates might be able to capture money from investors, an this will have impact in volumes.”