The amount of trading revenue banks generate from their corporate clients has risen sharply in the past year, benefitting firms with a large presence in this space and prompting several to continue to plough more resources into corporate relationships. Bank of America, Citigroup and Morgan Stanley are among the banks that have been intensifying their efforts with corporate clients, as treasurers and finance chiefs have scrambled to shield themselves against moves in interest rates, currencies and commodities over the past 18 months. That activity has meant corporates now account for a greater share of banks’ fixed-income revenues, helping to offset a decline in trading from other clients like macro hedge funds. Industry experts estimate corporate clients represent more than 18% of the revenue pool for banks' fixed-income trading units this year, up from about 15% in 2021 before the US Federal Reserve began lifting interest rates. “Diversification has certainly helped us, especially if you look at this year versus last year,” said Snigdha Singh, co-head of EMEA FICC trading and head of EMEA markets initiatives at BofA, which has registered the biggest market share gains in 2023 in fixed-income revenues among the top five US banks. “There has been a lot of demand for risk transfers from corporates hedging to a higher rate environment and rehedging commodity exposures. Having the full suite of products as well as the geographical capability to move risk has helped strengthen the position of our franchise,” she said. Money-making engine It has been another strong year for banks’ bond trading divisions, which continue to reassert themselves as a crucial money-making engine after a lean period for much of the previous decade. The big five US banks generated US$51.5bn in fixed-income revenues in the first nine months of the year, a 3% decline from last year’s bumper haul but still about 40% above 2019. Those industry-wide figures mask significant differences in performance among individual banks, however – a divergence that executives attribute to variations in banks’ client mix and geographical footprint. Banks’ ability to capture corporate hedging transactions has been instrumental this year in buoying large US firms – especially those like BofA, Citi and JP Morgan which are most focused on corporates and have also benefitted from abnormally high levels of activity in their home market. That has come on the back of sharp swings in Treasuries and the regional banking crisis earlier in the year, as well as the once-in-a-lifetime initiative to replace US dollar Libor in trillions of US dollars of financial products. Many expect corporate clients to remain busy now that central banks have raised interest rates to their highest levels in well over a decade. “Citi’s markets business is bigger with corporates than our competitors, and corporates have been doing a lot of risk management hedging and cashflow movements,” said Andrew Morton, head of markets at Citi, which does about a third of its markets business with corporates and reported its best third-quarter revenues in rates and currencies of the past decade. Macro blowout The outsized importance of the corporate business in 2023 represents a step change from recent years. In 2022, it was banks like Goldman Sachs and Morgan Stanley with close ties to hedge funds that outperformed peers in fixed income amid a blowout year for many of those investors. Financial institutions remain comfortably the largest client segment for the trading arms of investment banks. But many have been looking to interact more with corporates, whose business they see as more reliable – and more profitable. While macro hedge funds typically trade a lot, the margins banks make on these transactions tend to be far skinnier. Hedge fund activity can also slow during trickier periods when they lose money – as many did aro

With the fat greeniums they once enjoyed having now largely evaporated, some European sovereigns are starting to fret over the value of issuing green bonds. Germany, the sector’s largest issuer, and Ireland are the first to raise the matter publicly since the product went mainstream in 2020 and 2021. "I cannot tell what a fair greenium is. But I know one thing: zero is unfair," said Thomas Weinberg, head of trading and issuance at Bundesrepublik Deutschland Finanzagentur, which handles Germany's bond issuance. “Something is going wrong here.” He was speaking on a panel at the Association for Financial Markets in Europe’s recent European government bond conference in Brussels. Having become the market’s largest sovereign green issuer with an annual programme of as much as €15bn–€17bn, Germany has seen its greenium shrink. Having ascended to 5bp and higher in some cases in late 2021, it has declined to 1bp–2bp across much of the sovereign’s green yield curve. “Transparency [over bond proceeds’ allocation and impact] and the risk attached to that should be mirrored in the price of a green bond," Weinberg said. It was a view shared by Anthony Linehan, deputy director for funding and debt management at Ireland’s National Treasury Management Agency. “If there's absolutely [no greenium] on issuance, why would we undertake all the work and risk that's involved in issuing a green bond?" he asked the AFME conference. “There has to be a reward to the issuer.” Value for money Despite the greenium decline, which has affected most sovereigns as green supply has risen and especially as focus on liquidity has intensified this year, investors still appear to assign some additional value to sovereign green bonds. Germany’s largest outstanding green issue, the €10bn 2050, traded at 2.69% on Thursday, according to Deutsche Bundesbank data – 2bp inside its conventional twin. The €9.5bn 2030 green Bund was also 2bp inside. Moreover, the sovereign’s green curve shows some larger greeniums. Germany’s shortest outstanding green bond, the 2025 Bobl, closed as much as 5bp inside its twin on Thursday, while the more recent 2027 green Bobl was at a 3bp premium. Conversely, though, the 2031 green Bund was trading flat to its twin at 2.48% and the newer 2033 and 2053 green issues were only 1bp inside their twins at 2.54% and 2.75%, respectively. Germany’s updated green bond presentation in April described it as a “permanent issuer” of the product – though Wednesday’s announcement that it is withdrawing from the inflation-linked sector, where it has a similar volume of debt outstanding, could lead some to question this stance. One example of a sovereign borrower effectively withdrawing from green issuance – or at least declining to build a curve – already exists. Triple A Sweden has not issued the product since it completed the "initial government assignment to issue a green bond”, as the National Debt Office put it in a November 2021 investor report. Best interest France, the pioneer of sovereign green issuance with an unmatched €62bn outstanding, has seen a particularly notable decline in its greenium from as much as 20bp on its landmark 2039 OAT verte a year ago to a single-digit figure now. But a spokeswoman for Agence France Tresor affirmed multiple benefits from the product. “AFT issues green bonds to support the development of sustainable finance and its contribution to the green transition, in line with the government’s policy, but also to respond to market demand and diversify the investor base. This strategy of issuing bonds regularly in a flexible manner to meet investor demand enables [AFT] to issue debt in the best interests of the taxpayer.” Belgium has achieved what Maric Post, director of treasury and capital markets at the Belgian Debt Agency, te

ESG is often no longer the first question asked by banks and investors in financing discussions with companies as attention shifts to old-fashioned questions of how much money companies make and how they do so. The issue of returns has come back to the forefront in a difficult year that has seen interest rates rising and inflation peaking. It also comes as financiers start to dig into companies' energy transition plans and calculate the cost of decarbonisation as the economics of ESG come under increasing scrutiny. "In my view, the ESG discussion is maturing. The conversation has moved on. Investors are now back to the nuts and bolts of what companies have understood drives investors," said Brendan Moran, senior banker for energy and natural resources at Societe Generale. "ESG is still a very important factor, but it doesn't always lead the conversation as it did 12–18 months ago. It's back to fundamental basics like 'talk to me about your cashflow and dividend policy and also I'd like to understand a bit more about your sustainability journey'." This new realism is also being driven by US investors who are under pressure to justify sustainable investments by the vocal anti-ESG lobby in the US. Market conditions have clearly played a big part in the changing narrative. Some companies have put plans on hold to issue in ESG formats due to market volatility, particularly debut issuers, but ESG remains a major consideration for both labelled and conventional issuance. "This year certain companies have absolutely had less of a focus on ESG as they've been battling other challenges. It doesn't mean that sustainability has dropped off their agenda," said Hannah Simons, head of sustainability at Lloyds Bank Corporate Markets. But even if priorities have changed, ESG considerations are still key to financing conversations. “ESG is so much embedded now that it is ‘business as usual’. More and more – in particular in the investment-grade world – we see ESG analysts in the same room with credit and portfolio analysts trying to assess the evolution profile of a company, its targets and capex plan,” said Franck Rizzoli, head of ESG financing advisory at BNP Paribas. And even if day-to-day financing discussions no longer begin with a conversation about ESG, companies' transition strategies remain a core issue for C-suite executives. Rizzoli said he is talking to investor relations officials, CFOs and CEOs about the impact of ESG targets on their businesses. Atul Sodhi, global head of debt capital markets at Credit Agricole, is having similar conversations. "There is no doubt that ESG is a key topic and will remain a key topic. ESG has become more strategic and is engaging the attention of boards, CEOs and CFOs," Sodhi said. This is also having an impact on banks with still more ESG teams being established to advise issuers on ESG-labelled and conventional debt, which is blurring the lines as sustainability becomes enmeshed in corporate strategy. For example, German carmaker BMW opted not to issue in ESG format in June when it agreed an €8bn syndicated revolving credit facility but presented its strategic focus on sustainability as part of the syndication process, including a sustainability fact sheet and questionnaire. “ESG is fully embedded and in particular for conventional deals, ESG is an assessment that you need to pass,” Rizzoli said. Less risky Some of the market's more forward-thinking companies are already pricing their transition plans. For example, Italian utility Enel on November 22 presented its 2024–26 strategic plan which mapped out its total gross capex of €35.8bn in the next three years through higher investment in grids and a "less capital intensive and less risky" approach to renewables. Around €18.6bn of gross capex will be devoted to transmission, approximately €12.1bn will be for renewables, about €3bn will be for the customer busine

Britain’s biggest retail lender Lloyds Banking Group is set to announce plans next week to ramp up growth in its investment banking operations, signalling a big change in ambition and approach from three years ago when the bank gave no bonuses to the majority of its investment bankers, which prompted a stream of departures. The investment bank is part of Lloyds' corporate and institutional banking arm and typically keeps a low profile – Lloyds doesn't even break out revenues for the unit. But that is likely to change on Tuesday when Lloyds gives a presentation called "Develop our Corporate and Institutional business", the first since John Winter became CEO of CIB in September 2022. Insiders say that in the two years since Charlie Nunn took over as CEO from Antonio Horta-Osorio, the negativity around its investment bank has ended, as has the steady flow of departures from various product and coverage lines. Winter is expected to set out a vision for Lloyds to be a far stronger domestic player in investment banking focused on supporting clients at home and internationally, replicating a formula for regional or national strength that other banks have shown can work – especially in the Nordics, the Middle East, Canada and Australia. But unlike some of those regional or national investment bank powers, Lloyds has no M&A or equity capital markets ambitions – it is a pure-play fixed-income shop. It is expected to stick to that plan, which some see as a model akin to Barclays before 2008 when it focused on debt markets and resisted the urge to spread. Winter is a former Barclays executive and was one of architects of that strategy. Penetration CIB is part of the commercial bank division, which accounted for £2.8bn of revenues in the first half, or 30% of the revenues across the group. Lloyds does not say how much CIB contributes but its £57bn of loans at the end of June accounted for 61% of the commercial bank's total. Given the size of its corporate lending book and lack of penetration with potential financial institution clients, bankers say Lloyds' share of client wallet in the UK has the potential to grow considerably. In sterling bond league tables Lloyds has half the market share of Barclays, the biggest UK investment bank, and is also behind HSBC and NatWest. It is also behind Canada's RBC, a longstanding player in the UK. In theory, the objective is quite simple: boost CIB revenues by selling more products to its hundreds of big corporate clients, which are firms with a turnover above £100m, and financial institutions. Central to that is cross-selling to its large UK clients and non-UK clients who have a strong connection to the UK market. In the past, the bank often served institutional clients with a single or narrow product range, or with loans with thin margins. The aim is to strengthen relationships in treasury departments on plain vanilla but essential offerings such as sterling bond issuance, foreign exchange, securitisations and transaction banking, with the latter bolstered by a new cash management payments system – called GEM – that is about to come online. The bank is also expected to broaden its product offering in some areas. Insiders say the bank underinvested in product capabilities in CIB under Horta-Osorio, but it still is a meaningful player in the various sterling fixed-income league tables. The challenge will be to convince clients and potential staff it has a credible strategy to compete in international markets, such as in euros and US dollars. It is also expected to flag growth opportunities in ESG, including in the US where it can tap Inflation Reduction Act funding. "We have heard [about Lloyds' plans] and all I can say is they have a lot of work to do," said the head of capital markets at a rival UK bank. Winter's come in Winter is a market veteran who was previously EMEA chief at Japan's MUFG. He spent 11 years at Merrill Lynch and five yea