Banks sitting on around €1.6bn-equivalent of financing backing CVC's purchase of Unilever's tea business Ekaterra are pitching the deal again to investors, with the hope of shifting the debt by the end of the year. The much-delayed financing is one of the largest and most long-standing underwrites still stuck on banks' balance sheets in Europe. If banks do manage to sell it down, they will likely have to do so at a loss as the deal was underwritten when the market was much more favourable for borrowers. Unilever sold Ekaterra to CVC Capital Partners Fund VIII for €4.5bn on a cash-free, debt-free basis in a deal that was announced in November 2021. Bank of America, Barclays, Goldman Sachs, Citigroup and Deutsche Bank lined up a €2.1bn-equivalent term loan B split between euros and sterling to back the buyout. The lead banks kicked off pre-marketing to investors early this year, but were blindsided by the effective closure of the debt markets following Russia's invasion of Ukraine. Underwriters eventually managed to shift the majority of the deal's £500m sterling tranche to buyers over the summer, albeit at a deep discount. The price was said to be 94 OID. Banks also mulled switching a portion of the deal into the US dollar market, in order to try their luck with the larger, more liquid market. A rally in credit in recent weeks and a flurry of recent CLO primary activity has led to increased investor appetite for leveraged loans, leading to some activity in primary and raising hopes among bankers that they may be able to shift acquisition financings in to the market. But it is still not certain the paper is sellable on acceptable terms. "Banks need to see where it lands," said one banker. "They need to see where demand is and whether there is a deal." The banks are targeting both private debt funds and investors in what may not be a broadly syndicated deal, said sources. Thin pipeline Banks in Europe are finishing up the year with a fairly light balance sheet, having sold down hung positions to below €10bn. Underwriters had been left stuck with around €40bn-equivalent of M&A risk in the immediate aftermath of Russia's invasion of Ukraine, but have since managed to sell risk down in chunks, often via private placements. In addition, banks have been cautious about taking on new risk, while M&A processes are still few and far between. "The pipeline is incredibly thin," said a leveraged finance banker. That said, there are still a number of positions still outstanding. Banks are still sitting on a €1.8bn chunk of financing backing CD&R's acquisition of UK supermarket Morrisons over a year after the financing was first underwritten. Leads on the deal, which include BNP Paribas and Goldman Sachs, have indicated that they're happy to sit on the remaining debt for the time being after selling down the majority of the original £6.6bn position via a number of private sales. Banks are likely to wait for Christmas numbers before they make a move, bankers said. Other deals to be syndicated include a US$2.9bn-equivalent financing package backing the merger of DSM Engineering Materials with Lanxess's high performance materials business. Banks on the financing include Barclays and BNP Paribas. The deal is expected to be syndicated in 2023, while banks have been also looking to place around US$1bn of debt with direct lenders. There is also a £1bn bridge outstanding for Brookfield's acquisition of UK home repair services firm Homeserve. Bank of America, MUFG, RBC and Deutsche Bank are expected to sell down their positions to a wider bank group shortly, and will then likely put permanent financing in place next year. Banks are also holding onto a number of positions left over from deals which were syndicated into volatile markets and did not reach their target size. Barclays, JP Morgan and Societe Generale are sitting on at least €425m in debt backing Belgian staffing firm House of H
India's sprawling Adani Group is turning to the domestic retail equity and debt markets to finance its ambitious expansion plans. Group companies Adani Enterprises and Adani Transmission are planning follow-on public offers of up to US$3.4bn of equity combined next year, people with knowledge of the transactions said. Adani Enterprises, the group's holding company, is planning an FPO of up to Rs200bn (US$2.4bn) in the first quarter, while the transmission company is planning a US$500m–$1bn issue sometime next year, the people said. Both companies are looking to raise capital to manage their gearing and fund expansion. Adani Enterprises and Adani Transmission have debt of US$2.5bn and US$6.2bn, respectively, according to Refinitiv data. Adani Group chairman Gautam Adani has said the group will invest more than US$100bn over the next decade, most of it in the energy transition business. All six publicly listed Adani group units will look at doing primary issuance to broaden their shareholder base, chief financial officer Jugeshinder Singh told IFR. “We want to create diversity and depth in the shareholder register," under a process that is expected to be completed in 2025, he said. Singh said the right balance would include strategic investors, cornerstone holdings from the Adani family, and retail investors. ICICI Securities and Jefferies are working on the Adani Enterprises transaction and more banks are likely to join the syndicate. The Adani Transmission syndicate has not been finalised. Adani Enterprises is also planning to raise at least Rs2.5bn from its first public issue of bonds in mid-December. On the equity side, Adani Enterprises and Adani Transmission are eyeing public offers as they want participation from retail investors. This is relatively rare in India as subscription for an FPO stays open for three to four days and companies tend to prefer overnight qualified institutional placements. “The general perception is that only those companies which cannot sell a QIP will opt for an FPO,” an ECM banker said. But in this case, according to a Mumbai-based ECM banker, the two Adani companies are choosing the FPO route as it gives them complete discretion on the size of discounts they can offer to investors, whereas the floor price of a QIP cannot be less than the average share price in the two weeks before launch. Discounts needed Large discounts are seen as essential given the run-up in share prices and steep valuations of the duo. Adani Enterprises shares are up 130% year to date and Adani Transmission 60%. "We will look at giving a discount, it is part of the consideration," said Singh. The actual structure will be decided over the next two weeks, he said. Kranthi Bathini, director of equity strategy at WealthMills Securities, said the company's valuations were very high based on their fundamentals, and they are in a high growth phase to capitalise on opportunities in India. The deals, which were expected to be discussed at an Adani Enterprises board meeting on Friday, would be the first equity raisings in the public market in over a decade for both companies. The Adani Group has been under pressure to cut debt following a credit-fuelled expansion. Earlier this year, International Holding Company, an Abu Dhabi-based conglomerate, invested a total Rs154bn in Adani Green Energy, Adani Transmission and Adani Enterprises. Fitch estimated that Adani Transmission's net debt to Ebitda would improve to five times in the financial year ending March 2023 following the investment, from its previous forecast of 6.4. “The pressure on Adani Group to raise more funds from equity offerings comes not from their existing equity investors but more from the creditors, especially the banks,” said a research report from CreditSights. Rupee bonds Meanwhile, as rising global interest rates have made overseas markets expensive, other Adani Group companies are turning to the domestic bond market to raise fu
Societe Generale and US investment management and research firm AllianceBernstein are forming a joint venture to combine their cash equities and equity research businesses, which the French bank said would mark "a step-change" towards creating a top 10 global equity house. SG will take a 51% interest in the joint venture and have an option to take full ownership after five years. The business will be run under the Bernstein name and be headquartered in London. There will be about 800 staff in the JV, comprising about 240 from SG and 560 from Bernstein. It will combine Bernstein's global equity research and execution platform with SG's equity research and execution capabilities. It will include the Autonomous research unit, which covers financial companies and was bought by Bernstein in 2019. The venture will have access to SG's equity capital markets, equity derivatives and prime services platforms, although those staff will not be part of the JV. “The industrial logic of a transaction of this size and nature is that it goes beyond global equities. The cash equities franchise is also a window to other parts of the bank,” said Stephane Loiseau, global head of SG's cash equities business, who will be deputy CEO of the new venture. For SG, that includes connections to its strong equity derivatives business, its ECM platform, and using it to grow in Asia. Loiseau said SG would expand its ECM platform on the back of the deal, notably in the US. “We’ll build in the US. Once you are in a market where you have a research franchise that is top 10 with high-quality analysts who can be great advisers on ECM transactions you want to be able to support that with your banking platform and there’s going to be an investment in ECM in the US to grow with the JV,” Loiseau told IFR in an interview. He said the bank would also expand ECM in Europe, possibly in northern Europe where it has less of a presence, while building the platform in Asia is a longer-term aim. He declined to comment on the scale of build-up in terms of people or investment. Dan Davies, managing director at research firm Frontline Analysts, said the deal gave SG "a great research name that they can bolt on to the existing business" but it was a stretch to expect it to compete with the US powerhouses in ECM. Davies added, though, that if managed right, a good cash equities business can get big synergies with a strong equity derivatives business – which SG definitely has – so the deal can deliver there. In particular, having an anchor client in the form of SG's derivatives desk will provide significant ballast to the JV. There are similarities with rival BNP Paribas' successful expansion in equities in recent years via an alliance with Exane on equity research and trading. That culminated in BNPP taking full control of the venture last year following a long partnership. "I wonder if SG are trying to make lightning strike twice," Davies said. Access to a bigger ECM platform is likely to have been a driver for Bernstein in seeking a deal. Bernstein provides ECM services alongside its research, mainly as a co-manager for IPOs and follow-on offerings. It hired Alastair Walmsley in October 2021 and Jon Biele in March as global co-heads of ECM. They were tasked with building a global ECM operation to dovetail with Bernstein's strengths in research. Bernstein had some success building an ECM team in the 1990s and was co-manager on Goldman Sachs’ 1999 IPO, but it shut the business down in 2002. It restarted ECM efforts after the financial crisis, but exited again in 2015. Top 10 target The joint venture is expected to go live in the fourth quarter of 2023. When that happens SG will make "an equalisation payment" to Bernstein, but the firms did not say how much that would be. Robert van Brugge, CEO of Bernstein Research, will become CEO of the new entity for an initial five years. Loiseau said the aim was to be a top 10 global equit
Societe Generale and US investment management and research firm AllianceBernstein are forming a joint venture to combine their cash equities and equity research businesses, which the French bank said would mark "a step-change" towards creating a top 10 global equity house. SG will take a 51% interest in the joint venture and have an option to take full ownership after five years. The business will be run under the Bernstein name and be headquartered in London. There will be about 800 staff in the JV, comprising about 240 from SG and 560 from Bernstein. It will combine Bernstein's global equity research and execution platform with SG's equity research and execution capabilities. It will include the Autonomous research unit, which covers financial companies and was bought by Bernstein in 2019. The venture will have access to SG's equity capital markets, equity derivatives and prime services platforms, although those staff will not be part of the JV. “The industrial logic of a transaction of this size and nature is that it goes beyond global equities. The cash equities franchise is also a window to other parts of the bank,” said Stephane Loiseau, global head of SG's cash equities business, who will be deputy CEO of the new venture. For SG, that includes connections to its strong equity derivatives business, its ECM platform, and using it to grow in Asia. Loiseau said SG would expand its ECM platform on the back of the deal, notably in the US. “We’ll build in the US. Once you are in a market where you have a research franchise that is top 10 with high-quality analysts who can be great advisers on ECM transactions you want to be able to support that with your banking platform and there’s going to be an investment in ECM in the US to grow with the JV,” Loiseau told IFR in an interview. He said the bank would also expand ECM in Europe, possibly in northern Europe where it has less of a presence, while building the platform in Asia is a longer-term aim. He declined to comment on the scale of build-up in terms of people or investment. Dan Davies, managing director at research firm Frontline Analysts, said the deal gave SG "a great research name that they can bolt on to the existing business" but it was a stretch to expect it to compete with the US powerhouses in ECM. Davies added, though, that if managed right, a good cash equities business can get big synergies with a strong equity derivatives business – which SG definitely has – so the deal can deliver there. In particular, having an anchor client in the form of SG's derivatives desk will provide significant ballast to the JV. There are similarities with rival BNP Paribas' successful expansion in equities in recent years via an alliance with Exane on equity research and trading. That culminated in BNPP taking full control of the venture last year following a long partnership. "I wonder if SG are trying to make lightning strike twice," Davies said. Access to a bigger ECM platform is likely to have been a driver for Bernstein in seeking a deal. Bernstein provides ECM services alongside its research, mainly as a co-manager for IPOs and follow-on offerings. It hired Alastair Walmsley in October 2021 and Jon Biele in March as global co-heads of ECM. They were tasked with building a global ECM operation to dovetail with Bernstein's strengths in research. Bernstein had some success building an ECM team in the 1990s and was co-manager on Goldman Sachs’ 1999 IPO, but it shut the business down in 2002. It restarted ECM efforts after the financial crisis, but exited again in 2015. Top 10 target The joint venture is expected to go live in the fourth quarter of 2023. When that happens SG will make "an equalisation payment" to Bernstein, but the firms did not say how much that would be. Robert van Brugge, CEO of Bernstein Research, will become CEO of the new entity for an initial five years. Loiseau said the aim was to be a top 10 global equit
Rising rates are forcing the biggest US banks to consider allowing total loss-absorbing capital bonds to mature rather than redeem them at the first call date, as has been convention. Goldman Sachs and Morgan Stanley have already extended notes beyond their call dates – if more follow suit, it could result in a further repricing of the TLAC market. Global systemically important lenders started issuing senior callable debt to meet TLAC requirements in 2016. Until this year, lenders have almost always called the bonds as soon as possible. In return for this level of certainty, investors were happy with a meagre 5bp–10bp premium to compensate for the call option in the last year of maturity. Things started to look less certain earlier this year after Goldman kept hold of its 0.523% fixed-for-life notes and, more recently, when Morgan Stanley extended its 0.56% note beyond its November 10 call date. Both bonds reset to a lower back-end spread, a function of the fact they were issued during a period of low interest rates. The latter move by Morgan Stanley was the first time any bank had chosen to leave a fixed-to-floating TLAC bond outstanding, according to CreditSights. Market convention on call decisions has been broken across markets and jurisdictions in 2022. In Europe, for the first time in five years, some bank Tier 2 bonds have been extended because refinancing them in the primary market would have been prohibitively expensive for the issuers, while there has also been an uptick in non-calls in the Additional Tier 1 market. However, in Europe it has only been smaller and weaker issuers or those troubled by idiosyncratic risks, such as the heavily Russia-exposed RBI, that have decided to extend this year, rather than national champions like Goldman and Morgan Stanley. Assumption Typically, the final year of a TLAC note's maturity carries a call option, allowing the bank to redeem the bond once it starts to lose its capital treatment. The assumption was banks would do so to avoid holding onto older bonds that were shedding their value as TLAC capital. Now that interest rates are rising, though, it makes sense for the banks not to call securities with low reset spreads – capital treatment or not. “If it’s economically viable, the banks will keep them outstanding,” said John Sheehan, a portfolio manager at Osterweis Capital Management. Michael Verdeschi, treasurer of Citigroup, had made it clear on a July 28 investor call that that is how he values such bonds. “It does turn into a cost of funding decision once you begin to lose that TLAC value," he said. The signs are already there that investors will demand higher yields and bigger premiums as a result. Dan Bruzzo, a managing director at money manager Amherst Pierpont, said premiums had built up for bonds with lower back-end spreads – and in some instances had widened to as much as 20bp–25bp, he said. Figuring out the appropriate call premium of that last year could prove difficult. Market participants say this is in part because banks issue so few non-callable bonds and non-callable bonds are often used to gauge pricing on a new TLAC issue. Appropriate premium For banks like Goldman and Morgan Stanley that have an abundance of TLAC capital already, the benefits of redeeming the securities before they lose capital treatment could prove limited. Still, bank treasurers will not take the decision to extend TLAC bonds lightly. Financial issuers sweat over every basis point of pricing due to their frequent entries into the primary market, market participants said. And if investors have to start assessing the extension risk on every TLAC note, it will lift the cost of issuing in the primary market. “It does introduce an unnecessary amount of volatility,” said John Gentry, head of the corporate fixed-income group at Federated Hermes. “It is an issue given banks borrow a tremendous amount for their regulatory
The extreme volatility gripping financial markets has proved to be a mixed bag for banks this year. Corporate financiers have struggled amid a drought in dealmaking, while trading desks have thrived as investors shuffle positions. In this sales and trading bonanza, now stretching into its third year, JP Morgan is on track to equal its record haul of nearly US$30bn in annual markets revenues registered in 2020. That will cement its place as the pre-eminent bank in global markets, a position it has held for more than a decade after weathering the 2008 financial crisis better than its peers, and vindicate its decision to maintain a beefed-up trading unit during the leaner spell that preceded the pandemic. But staying on top of the pack looks set to become tougher than ever in the years ahead as US rivals along with a clutch of resurgent European banks battle to grab a larger slice of the revenue pool. The likes of Goldman Sachs, Morgan Stanley and Barclays have grown at an even faster pace in this high-volatility environment, underlining the difficulties of maintaining a lead. “The competition has never been this tough," Marc Badrichani, JP Morgan’s head of global sales and research, told IFR in an interview at the bank’s Canary Wharf office in London. “Our focus has always been on staying close to large financial institutions so we can be their bank of choice and benefit from them growing. We believe that through doing that and being well positioned to capture some trends in markets, such as the growth of private assets, we will reinforce our leading position.” Market share The previous decade saw US banks increase their market share in sales and trading as many European firms such as UBS and RBS/NatWest beat a retreat. That helped cushion the decline in industry-wide markets revenues for US lenders, as the prolonged era of low interest rates depressed volatility and trading volumes. But the market backdrop has changed hugely over the past few years, bringing trading desks to the fore once again. Asset prices have been far choppier since the pandemic, prompting a flurry of client activity and providing a tailwind to the handful of banks determined to expand their trading divisions. JP Morgan still remains out in front with US$23.3bn of revenue from trading in the first nine months of the year, a 46% increase compared with the same period in 2019, the last pre-pandemic year (and 5% above 2021). That has seen it increase revenues at a faster clip than Citigroup and Bank of America, but more slowly than the likes of Goldman, Morgan Stanley, Barclays, BNP Paribas and Deutsche Bank. Goldman has been the standout performer in this period, roughly doubling its trading revenues to US$20.5bn so far in 2022 from its 2019 levels. Observers suggest increased risk appetite (particularly in fixed income) has been partly responsible for propelling these rivals up the ranks. So is JP Morgan missing a trick by not growing trading revenues even more? “You can always do better,” Badrichani said, highlighting some areas where JP Morgan has been investing. One of those is in electronic trading of corporate bonds, which has taken off in recent years. “We want to be top three in all products,” he said. “There are times when you have some areas of weakness and you need to double down on those areas and correct them.” One area JP Morgan has made notable headway in recent years is equities trading, where it is now going toe to toe with Morgan Stanley and Goldman. And what about trading in physical commodities, a space that many banks exited, but has been hugely profitable for those like Goldman that remain in a year dominated by swings in natural resource prices? JP Morgan is prominent in metals trading, but has a reduced presence in other markets after selling its physical business to Mercuria in 2014. “We didn’t like the risk-reward of a lot of that business,” said Bad
Rising rates are forcing the biggest US banks to consider allowing total loss-absorbing capital bonds to mature rather than redeem them at the first call date, as has been convention. Goldman Sachs and Morgan Stanley have already extended notes beyond their call dates – if more follow suit, it could result in a further repricing of the TLAC market. Global systemically important lenders started issuing senior callable debt to meet TLAC requirements in 2016. Until this year, lenders have almost always called the bonds as soon as possible. In return for this level of certainty, investors were happy with a meagre 5bp–10bp premium to compensate for the call option in the last year of maturity. Things started to look less certain earlier this year after Goldman kept hold of its 0.523% fixed-for-life notes and, more recently, when Morgan Stanley extended its 0.56% note beyond its November 10 call date. Both bonds reset to a lower back-end spread, a function of the fact they were issued during a period of low interest rates. The latter move by Morgan Stanley was the first time any bank had chosen to leave a fixed-to-floating TLAC bond outstanding, according to CreditSights. Market convention on call decisions has been broken across markets and jurisdictions in 2022. In Europe, for the first time in five years, some bank Tier 2 bonds have been extended because refinancing them in the primary market would have been prohibitively expensive for the issuers, while there has also been an uptick in non-calls in the Additional Tier 1 market. However, in Europe it has only been smaller and weaker issuers or those troubled by idiosyncratic risks, such as the heavily Russia-exposed RBI, that have decided to extend this year, rather than national champions like Goldman and Morgan Stanley. Assumption Typically, the final year of a TLAC note's maturity carries a call option, allowing the bank to redeem the bond once it starts to lose its capital treatment. The assumption was banks would do so to avoid holding onto older bonds that were shedding their value as TLAC capital. Now that interest rates are rising, though, it makes sense for the banks not to call securities with low reset spreads – capital treatment or not. “If it’s economically viable, the banks will keep them outstanding,” said John Sheehan, a portfolio manager at Osterweis Capital Management. Michael Verdeschi, treasurer of Citigroup, had made it clear on a July 28 investor call that that is how he values such bonds. “It does turn into a cost of funding decision once you begin to lose that TLAC value," he said. The signs are already there that investors will demand higher yields and bigger premiums as a result. Dan Bruzzo, a managing director at money manager Amherst Pierpont, said premiums had built up for bonds with lower back-end spreads – and in some instances had widened to as much as 20bp–25bp, he said. Figuring out the appropriate call premium of that last year could prove difficult. Market participants say this is in part because banks issue so few non-callable bonds and non-callable bonds are often used to gauge pricing on a new TLAC issue. Appropriate premium For banks like Goldman and Morgan Stanley that have an abundance of TLAC capital already, the benefits of redeeming the securities before they lose capital treatment could prove limited. Still, bank treasurers will not take the decision to extend TLAC bonds lightly. Financial issuers sweat over every basis point of pricing due to their frequent entries into the primary market, market participants said. And if investors have to start assessing the extension risk on every TLAC note, it will lift the cost of issuing in the primary market. “It does introduce an unnecessary amount of volatility,” said John Gentry, head of the corporate fixed-income group at Federated Hermes. “It is an issue given banks borrow a tremendous amount for their regulatory
State-owned Chinese banks have unleashed debt financings totalling at least Rmb1.135trn (US$159bn) in the past few days, but even this might not be enough to rescue the country’s embattled real estate sector, according to loan bankers and analysts. Since Wednesday, a slew of banks has announced agreements to provide relief to a dozen property firms, with China Vanke being the biggest recipient of the support. China’s second-largest developer by sales has won a support package of more than Rmb200bn through various loans including Bank of China and Bank of Communications. Industrial and Commercial Bank of China said on Thursday it had signed agreements to offer Rmb655bn to a dozen developers, including Vanke, Country Garden Holdings, Gemdale, Greentown China, Longfor Group, Midea Real Estate Holding and Radiance Holdings. Postal Savings Bank of China said it had agreed to provide a total of Rmb280bn in financing to property firms including Vanke, Longfor and Country Garden to help with the development of the property sector. However, market participants argue that the colossal debt package does not provide relief to the property developers most desperately in need of funding. "So far, developers that have benefited from the latest financing support are the ones with stronger liquidity positions," said a Hong Kong-based loan banker. "That does not make a huge difference to lender appetite for the property sector as a whole, unless the support is extended to smaller or weaker developers. Those are the ones that are most in need of rescue." The support package follows the collapse of several developers, which has hurt demand for housing and left thousands of homebuyers in limbo as their pre-sold residential projects remain incomplete. "State-owned banks are still cautious about extending credit to lower quality developers that are barely afloat, given the uncertainty as to whether they would be able to eventually turn themselves around and repay their debt obligations, or enter into a default like so many of their peers," CreditSights wrote in a report on Thursday. “The continued slump in home demand has also done little to boost investor confidence in any developer, let alone those that are in distress." Moody’s expects contracted property sales in China to continue to fall during 2023 due to weak demand amid concerns over the country’s economic slowdown, restrictions under the zero-Covid policy, and non-completion risks of pre-sold properties, according to a report released on November 17. Market participants are keen to know more details of the agreements announced so far. “There are a lot of questions as to how these strategic cooperation agreements are going to be implemented. Are they subject to any conditions? Will the developers be able to use these funds to service offshore debt?” said a second Hong Kong-based loan banker at a major Chinese bank. “Nonetheless, this is a positive gesture to restore homebuyers’ confidence in the property market. The new funds will help ensure delivery of unfinished housing projects, and hopefully boost the collapsed demand from homebuyers.” Credit line Bocom's deal with Vanke comes in the form or a Rmb100bn credit line. Under the agreement, Bocom will offer property development loans, mortgage loans and loans for merger and acquisition deals to Vanke, according to a statement from the lender. Bocom will also provide funds to the developer via letters of guarantee and bond investment, it said. The agreement is part of the bank’s efforts to implement 16 measures outlined by Chinese regulators to support the property sector, it said in the statement. BOC has signed a similar agreement with Vanke to provide the latter a credit line of up to Rmb100bn, according to Chinese media reports. Meanwhile, Agricultural Bank of China has signed strategic cooperation agreements with five developers, including China Overseas Land & Investm
The extreme volatility gripping financial markets has proved to be a mixed bag for banks this year. Corporate financiers have struggled amid a drought in dealmaking, while trading desks have thrived as investors shuffle positions. In this sales and trading bonanza, now stretching into its third year, JP Morgan is on track to equal its record haul of nearly US$30bn in annual markets revenues registered in 2020. That will cement its place as the pre-eminent bank in global markets, a position it has held for more than a decade after weathering the 2008 financial crisis better than its peers, and vindicate its decision to maintain a beefed-up trading unit during the leaner spell that preceded the pandemic. But staying on top of the pack looks set to become tougher than ever in the years ahead as US rivals along with a clutch of resurgent European banks battle to grab a larger slice of the revenue pool. The likes of Goldman Sachs, Morgan Stanley and Barclays have grown at an even faster pace in this high-volatility environment, underlining the difficulties of maintaining a lead. “The competition has never been this tough," Marc Badrichani, JP Morgan’s head of global sales and research, told IFR in an interview at the bank’s Canary Wharf office in London. “Our focus has always been on staying close to large financial institutions so we can be their bank of choice and benefit from them growing. We believe that through doing that and being well positioned to capture some trends in markets, such as the growth of private assets, we will reinforce our leading position.” Market share The previous decade saw US banks increase their market share in sales and trading as many European firms such as UBS and RBS/NatWest beat a retreat. That helped cushion the decline in industry-wide markets revenues for US lenders, as the prolonged era of low interest rates depressed volatility and trading volumes. But the market backdrop has changed hugely over the past few years, bringing trading desks to the fore once again. Asset prices have been far choppier since the pandemic, prompting a flurry of client activity and providing a tailwind to the handful of banks determined to expand their trading divisions. JP Morgan still remains out in front with US$23.3bn of revenue from trading in the first nine months of the year, a 46% increase compared with the same period in 2019, the last pre-pandemic year (and 5% above 2021). That has seen it increase revenues at a faster clip than Citigroup and Bank of America, but more slowly than the likes of Goldman, Morgan Stanley, Barclays, BNP Paribas and Deutsche Bank. Goldman has been the standout performer in this period, roughly doubling its trading revenues to US$20.5bn so far in 2022 from its 2019 levels. Observers suggest increased risk appetite (particularly in fixed income) has been partly responsible for propelling these rivals up the ranks. So is JP Morgan missing a trick by not growing trading revenues even more? “You can always do better,” Badrichani said, highlighting some areas where JP Morgan has been investing. One of those is in electronic trading of corporate bonds, which has taken off in recent years. “We want to be top three in all products,” he said. “There are times when you have some areas of weakness and you need to double down on those areas and correct them.” One area JP Morgan has made notable headway in recent years is equities trading, where it is now going toe to toe with Morgan Stanley and Goldman. And what about trading in physical commodities, a space that many banks exited, but has been hugely profitable for those like Goldman that remain in a year dominated by swings in natural resource prices? JP Morgan is prominent in metals trading, but has a reduced presence in other markets after selling its physical business to Mercuria in 2014. “We didn’t like the risk-reward of a lot of that business,” said Bad
A €1bn loan to EDF is the first green loan to be earmarked for the nuclear power industry and shows the increasing renaissance of the nuclear industry as a source of clean energy and energy security. The bilateral green loan from Credit Agricole will finance the maintenance of EDF’s power plants in France. Outages at EDF’s 56-strong fleet of reactors has severely hit production this year and spiralling financial problems prompted the French government to announce plans in July to renationalise the company. France is buying the 16% of EDF’s capital that it does not already own for an estimated €9.7bn. The green loan will help fund the "Grand Carenage", a major industrial programme led by EDF that aims to improve national energy security and extend the operating life of reactors beyond 40 years after a summer of shutdowns and strike action. EDF said that the green loan is the first for the nuclear industry worldwide as previous ESG-labelled deals for the sector have been in green bond format. In November 2021 Canadian firm Bruce Power issued the first green bond related to nuclear power and that deal was followed by a similar one from Ontario Power Generation in July. EDF's loan could also pave the way for Europe’s first nuclear green bond. Credit Agricole assisted EDF in incorporating nuclear power in its green bond framework in July following its inclusion in the EU Taxonomy. EDF is a prolific ESG issuer. It issued its first green bonds under the new framework in October, printing €1.25bn of 12-year green bonds as part of a €3bn senior multi-tranche issue. A green bond with a nuclear use of proceeds could be on the cards post-nationalisation. “EDF is saying to the market that it is ready to issue, so we had also a number of discussions with investors about what they are ready for. Even though it’s a loan that has been issued for the moment, we have seen how the landscape stands in Europe,” said Tanguy Claquin, head of sustainable banking at Credit Agricole. UK nuclear power plant operator Sizewell C is also looking at ESG-labelled debt in early 2023 to fund part of the £15bn cost of the UK’s new-generation nuclear reactor and is considering green bonds as well as social or sustainable bonds. New reactors EDF is bracing for a hit of around €32bn to its full-year core earnings from lower production, and the company first has to stabilise its production and financing before gearing up to invest in expensive new reactors that remain controversial due to concerns about nuclear waste. France is planning to build at least six reactors in the coming decades at an estimated cost of €50bn. The UK government has also commissioned EDF to build up to eight reactors by 2050 with up to 24GW capacity, many of which will be small modular reactors that could also attract ESG financing. “Despite the controversy, the market is moving to a rational and balanced way of financing different technology. Why shouldn’t small modular reactors or other technologies be financed by sustainable finance instruments and in the green market? I think we’re clearly moving in that direction,” Claquin said.
Bellwether