US Financial Bond House: Citigroup
Citigroup spearheaded the major trends driving FIG issuance in 2013, brought debut banks from as far away as Nigeria, Japan and Brazil to the US market and nurtured an investor base for a new generation of European bank capital securities – all without once dropping the ball on serving regular FIG clients at home. Citigroup is IFR’s US Financial Bond House of the Year.
For the first time since the financial crisis, banks became the safe play in the US market in the past year, and industrials were the bearers of event risk – a role reversal that launched a surge of US and Yankee FIG issuance in 2013.
By Thanksgiving, FIG new issue volume was just shy of US$400bn for 2013, a level not seen since 2007, if the spate of bank government-guaranteed bonds in the dark days of 2008–2010 is excluded.
Yankee issuance soared, and Citigroup stood out from the crowd as the underwriter that made the most of a booming FIG market in US dollars by laying the groundwork for new products to thrive and introducing a staggering array of different kinds of financials to US investors.
Its global reach led it to doing US dollar deals for the first time for First Bank of Nigeria, Abu Dhabi’s Al Hilal, Brazil’s BTG Pactual, Chile’s Corpbanca and then at the other end of the spectrum issuers like Skandinaviska Enskilda Banken, Fukoku Life and Sumitomo Mitsui Trust Bank.
Its repeat business is also impressive: Ally Financial has used Citigroup on every deal it has done, as has Sumitomo Mitsui Banking Corp; it led more Australian bank deals than any other underwriter in US dollars and was neck and neck with JP Morgan for doing the most transactions for Canadian banks.
It was also bookrunner or lead manager on every Additional Tier 1 and Tier 2 CoCo brought to the US market in 2013, including ING’s blowout US$2bn sub-debt deal, Societe Generale’s inaugural Reg S-only Additional Tier 1 with a temporary writedown, Credit Agricole’s 10-year non-call five CoCo and Barclays’ landmark US$2bn perpetual non-call five SEC-registered AT1 in November.
Citigroup’s global geographical reach is one reason for its prowess, but what really makes the bank a first call for financial issuers is its reputation for intense coverage and a superior ability to handle giant asset managers in the allocation process.
“The thing about Citi is that they have a very deep and integrated coverage model,” said the chief financial officer at a US financial institution. “There’s no ambiguity about who we need to call, because the investment banker and the syndicate desks work very closely together.”
Negotiating a delicate balance between the interests of issuers and the biggest asset managers during pricing and allocation is even more of a differentiator, say clients.
According to some issuers and accounts on the buyside, the largest asset managers will demand bigger allocations or threaten to slash their orders, making it difficult to get the deal done at all, which often leads to a syndicate manager throwing the issuer’s interests under the bus and backing up the buyers’ pricing.
Citigroup is one underwriter that manages to find a suitable compromise for both sides.
“When you do a debt issue there is a fine balance that the underwriter needs to weigh, between the needs of the issuer and the interests of the investor,” said a Treasurer at a US bank. “One of the ways Citi distinguishes themselves is the way they play that match-making role to get the best possible outcome for both sides.”
Citigroup’s strategy is built on a very simple foundation that sounds trite, but apparently resonates in the syndicate trenches.
“Post-credit crisis, our emphasis in fixed income and especially in FIG is to spend a lot of the time really understanding the clients better,” said Peter Aherne, head of North American capital markets, syndicate and new products at Citigroup. “Sometimes that means prioritising unique accounts which would otherwise not get a big allocation in the book.”
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