FINALLY. EUROPE’S WHOLESALE banks are fighting back. Commerzbank, Credit Agricole and Natixis have all unveiled growth and expansion-oriented strategy updates or reorganisations of their corporate and investment banks in recent days and weeks focusing on targeted internationalisation and product extension.
There’s only so much doom and gloom you can take, and after years of cutting, trimming, slashing, exiting and optimising, it’s good to see there’s still life out there and that ambitions are once again running high, even against this uncertain and volatile backdrop. We once again have banks on the offensive and with drive.
This is no unbridled expansion-at-all-costs masters-of-the-universe globalisation mission. It is predicated on the notion of integrated service provision and an almost forensic analysis of what the opportunities are, where, in which areas and for which clients.
These banks clearly believe they can take market share in their selected areas, not just by dint of the withdrawal of some of the banking behemoths from certain spots as these larger groups continue to focus on more existential issues, but also because the new pretenders believe they have unique or quasi-unique value-added skill-sets that will generate demand from their client segments. That’s key here.
I WAS THINKING about the new-found spring in the step of the banks I referenced at the top when the joint Oliver Wyman and Morgan Stanley “Wholesale Banks & Asset Managers: Learning to Live with Less Liquidity” Blue Paper came cross my desk.
While it makes for uncomfortable reading in a lot of areas in relation to the banks’ operating models and returns profile, I was taken with one comment: “winners”, the report noted, “will be [banks] with scale, but specialist banks and non-banks could also prosper”. The report estimates that around 5% of market share could be up for grabs as banks make sharper client and regional choices.
Bingo, I thought. That falls exactly into my evolving thesis. Banks with scale are relatively easy to identify. But what exactly are specialist banks? My initial reaction was boutiques or one-product specialist firms. But actually, if you buy the idea of banks developing a carefully filleted suite of products, services and locations for a set client segment, that makes them specialists.
That knocks the idea of a bar-belled banking industry on its head; a model that clearly implies banks in the middle will be squeezed out of the frame. I’m now thinking this is not in fact the case and that what many had thought of as second-line (directionless) wholesale-cum-CIBs have shifted up a gear and feel they have something valuable to offer.
TAKE COMMERZBANK. THE bank is present in more than 50 countries, claims more than 30% of Germany’s foreign trade financing, and says it’s the unchallenged leader in SME financing with a million business and corporate clients.
Corporate finance and client relationship management were merged and the bank created advisory and primary markets late last year. Run by the urbane Roman Schmidt, APM adopted a model as of January 2016 that was successfully tested in the laboratory of the Mittelstandsbank. Growth is being pursued under the umbrella of eight industry verticals matrixed across specialist product functions (DCM, ECM, syndicated loans, M&A execution, leveraged finance and structured capital markets).
The idea in, say, autos, is to capture the supply chain within the advisory, origination, execution, transaction banking, cash management and processing functions. Commerzbank has thousands of auto supply banking relationships and is able to follow the supply blood line from finished automobiles all the way back through to the raw materials metals and mining suppliers. That’s powerful.
Following and being relevant to its core client base has pushed the bank to gain a securities rep office licence in China and a subsidiary licence in Brazil, a huge base for German industrials. Will Commerzbank build a local currency domestic Brazilian origination platform? No. The expansion will see the bank continue to grow beyond its domestic corporate client base, as former global head of loan syndications Roland Boehm takes the helm of the international corporate bank.
Around 5% of market share could be up for grabs as banks make sharper client and regional choices
IN SIMILAR VEIN, Natixis just unveiled a re-org of its CIB as well as a host of management changes and acquisitions to expand internationally. The 16,000-strong bank has in short order bought a majority stake in US investment banking boutique Peter J Solomon Company, run by the legendary Peter Solomon, vice-chairman of IBD at Lehman Brothers in the 1980s; the French business of European IB boutique Leonardo & Co as well as Spain’s 360 Corporate.
In terms of CIB structure, division co-heads Francois Riahi, newly appointed to run financing and global markets, and Marc Vincent, coverage and advisory, created global finance and investment banking business lines last week.
The former houses energy and commodities; aviation; export and infrastructure; real estate finance; financing portfolio management; and restructuring. IB houses strategic equity transactions; acquisition and strategic finance; capital and rating advisory; ECM; corporate loan structuring; and bond origination.
The bank wants to continue the build on the model it adopted in 2011 and on the tenets of its strategy unveiled in 2013. Inter alia, that targeted growth in origination capacity in structured finance and other areas, trade finance, equity derivatives and fixed-income.
Finally, Credit Agricole unleashed Strategic Ambition 2020 earlier this month, with a raft of targets, performance metrics and new priorities. The group certainly has plans for its investment bank (CACIB) and asset servicing business (CACEIS) in an increasingly integrated future, at the heart of which is servicing financial institutions across the value chain.
The CIB will maintain its structured finance credentials in aircraft, project and export finance. Its core customer base will continue to be mid-market mainly French corporates but it will selectively target large corporates. It also wants to boost M&A and ECM in the US where it can provide service to its clients operating cross-border.
Watch out: the Europeans are coming.
