Two corporates were able to build sizable books in the euro investment-grade bond market on Monday, proving that the primary is constructive with good levels of liquidity despite elevated risks. Volkswagen and Thames Water both brought dual-tranche offerings, for €2bn and €1.15bn, respectively. Both deals were subscribed almost three times at peak orders. Volkswagen Financial Services (A3/BBB+) was in the market with three and six-year notes. The deal gained combined books of over €5.9bn at the peak with greater interest at the time for the three-year tranche, at more than €3.1bn. By launch though, combined books had fallen to just over €4.2bn with demand evenly split. "It's a standard European name with a good following and rating, so I was waiting for this type of deal that sets a true barometer of where the market is, outside of the utilities and real estate sectors," said a syndicate banker. "The market looks decent, especially given that the books were built without the ECB's PEPP participation." Both tranches, which were equally-sized at €1bn, priced tight. The finance subsidiary of Volkswagen set final terms at mid-swaps plus 38bp and 80bp via BNP Paribas, HSBC, Mizuho, Standard Chartered Bank and UniCredit. The three-year came close to or even flat to fair value, according to bankers away from the deal, who put it in the mid to high-30s. On the six-year they reckoned fair value was in the mid to high-70s. One lead said the three-year note priced very close to fair value, while the longer tenor paid a premium of 6bp–7bp. Keeping the tenors relatively short helped rein in the premium. The average concessions on 10-plus year maturities have risen to 13bp from the 7bp level seen in the first half of last year, according to ABN Amro's strategists. "The company raised the maximum of what it wanted to achieve on a huge amount of demand, although there was some attrition after pricing tightened," said the lead. Thames Water Utilities Finance also enjoyed a good response from investors, enabling it to upsize its green dual-tranche deal at €1.15bn. Initially it was seeking €1bn through two evenly split portions. The UK water company launched a €575m six-year bond and a €575m 10-year tranche at mid-swaps plus 75bp and 100bp, respectively, inside IPTs of 95bp–100bp and 115bp–120bp. One DCM banker put fair value in the mid 60s and 80s, leading to concessions of 10bp and 15bp. Combined books peaked at €3.1bn with a skew to the six-year tranche. Orders then fell to €2.8bn with the same skew. BNP Paribas, Morgan Stanley, NatWest Markets and SEB were the leads. "They have a solid business and there hasn't been much euro issuance," said a lead as he explained the demand for the new issue. Although a frequent issuer in sterling, the last time Thames Water tapped the euro market was in 2010, according to IFR data. The company said in an investor presentation that it plans to diversify its funding sources in the euro market. The Class A secured notes are guaranteed by parent Thames Water Utilities and the intermediate holding company within the group, Thames Water Utilities Holdings. Financing subsidiary Thames Water Utilities Finance is the issuer of the new bonds that have expected ratings of Baa1/BBB+ (Moody's/S&P), one notch higher than the parent's Baa2 rating by Moody's. Raw sewage leak Thames Water plans to use the proceeds of the new green bonds for projects under its sustainable financing framework, such as building sustainable drainage systems, while it is facing protests over sewage release into the Thames. "It's unfortunate timing," said a DCM banker before the deal was launched. "This is a challenge for the sector in terms of PR - it's not that they are not allowed to do it. The news story is unhelpful but doesn't look like it will rock the execution." Hundreds gathered in Oxford after the water company sent a late warning about a spill because o
Societe Generale ushered in what is set to be a quieter week for FIG supply with a €1.25bn covered bond on Monday, cutting through the noise on a turbulent day in broader markets to bring in more than €1.7bn of orders while providing further evidence of a rise in new issue concessions. The seven-year obligations de financement de l'habitat was the sole euro FIG offering live on Monday, while just one deal was added to the pipeline – a €300m no-grow eight-year covered bond for Austria's Bausparkasse Wuestenrot. A banker at one of Societe Generale's leads said the deal had gone to plan after a tricky few days in the market. "We did see a little bit of fatigue creeping in the covered bond market last week, we were aware of problems in the longer end and could see that order books have begun to tail off a bit," he said. "For a core eurozone name like SocGen, deciding to go for a seven-year maturity was a smart choice." The deal was marketed with initial guidance of mid-swaps plus 4bp area, via Credit Agricole, Danske Bank, Erste Group, Mediobanca, Nordea, Scotiabank and Societe Generale. The spread was ultimately set at 1bp and the size at €1.25bn, with the final book standing above €1.7bn (including €50m JLM interest). Bankers deemed that a respectable outcome, while noting that the concession of 2bp–3bp was significant given intermediate-dated covereds were being priced flat to or inside fair value just weeks ago. "I had hoped they would get to flat," said a banker away from the deal. A second lead banker said the result reflected the decline in demand that became evident last week. "Hence why we had to pay some 3bp of new issue premium and tighten by 3bp, which is less than in previous weeks, where tightening was on average between 4bp and 5bp for core tenors," he said. "It is still a good trade considering the €1.25bn size." "This tells us that on the covered bond side, investors are not as willing to add risk at any price and they're certainly more price sensitive than in the past." However, he added that the quality of the book was high, with good participation from asset managers and central banks, alongside some demand from insurance companies and bank treasuries. All eyes on FOMC Supply is expected to remain light this week, reflecting not just European bank reporting periods but also a shaky market backdrop. The typical slowdown towards the end of January usually provides the market an opportunity to digest the preceding supply and supports the performance of new issues. Market participants had been hoping for some respite after heavy supply of senior unsecured bonds in particular, with some deals struggling to perform even after offering double-digit new issue concessions. However, the challenging macro environment is threatening to keep spreads under pressure, as nerves over inflation in the lead-up to this week's FOMC meeting and mounting concern over potential conflict in Ukraine take their toll on the broader market. "The market overall is definitely softer today, with indices, equities, everything weaker, with quite big moves and volatility definitely picking up," said the second banker. "It is especially feeding through to the capital space, with AT1s and Tier 2s seeing a lot of widening, while senior is holding fairly well." "In a stable environment it would be natural to see recent issues perform, and we did see some good performance in the shorter tenors coming through the primary market, but the long end has not done so well. It is a mixed picture very much driven by the macro backdrop. ... We will have to take a day-by-day approach at least for the next few days, and then it will be all eyes on the FOMC."
It is shaping up to be a busy week in the European high-yield market, with three new issues and a tap announced on Monday and one deal still in the public pipeline from last week, and if borrowers want to get deals done, they may have to stomach considerable premiums. Rising rates and diving equity markets do not make for an issuer-friendly backdrop, especially given expectations of a high level of near-term new deal supply. “New issue concessions are going to be elevated,” said one leveraged finance banker. “It is challenging to establish where the clearing level is for risk. The challenge in the secondary market is, with the amount of supply that is expected this week and next, people are going to look to the new issue market to generate alpha, which is going to drive new issue concessions even wider.” While it could be argued that it might serve some borrowers better to try and hold back, a lot see it as more prudent to get their deals done, de-risk and move on, he added. Italian football club Inter Milan is returning to the bond market to refinance debt through the sale of a €415m five-year non-call two senior secured that will be issued through Inter Media and Communication (mediaco). This entity manages and operates the media, broadcast and sponsorship business of the parent FC Internazionale Milano (teamco). Goldman Sachs is leading the issue, which is expected to be rated B+ plus by Fitch and is also expected to carry a rating from S&P. The issuer will use the funding to refinance both mediaco and teamco debt, which includes a €350.8m bond maturity at the end of this year and the refinancing of a €50.8m credit facility. “These types of deal can be interesting because they are quite new and people often run towards these sectors,” said a second banker. “When people started doing these mediaco deals five or six years ago, you would be working with maybe 10 accounts, and it took them a long time to get comfortable. Now it feels like has its own little ecosystem and a lot people are talking about sports financing. They like that they can finance media rights rather than assets.” Mediaco deals, such as Inter’s proposed bond, benefit from preferential recourse to media and commercial revenues, which can provide some insulation from operational risk. “The cashflow waterfall at Inter Media gives investors a senior claim on pledged revenues that ensures payments are made to investors, and reserve accounts are funded, before any distributions are made to teamco,” wrote the analysts at Fitch. Inter Media and Communication has two revenue streams: media, through which it generated €214.7m of adjusted revenues during the 12 months up to the end of September 2021; and sponsorship, through which it generated €74.3m during the same period. Covid-19 has had a significant impact on Inter Milan’s finances. Revenues have been weighed on by no or partial fan attendance, while player wages have increased. Meanwhile, expectations are that international sponsorship revenue will also decline in the coming years. Looking at Inter Milan’s consolidated credit profile, Fitch forecasts leverage of 21x in the club’s financial year 2023, falling to 9.5x the year after and 5.6x in 2025.Acquisition financing There were also a pair of acquisition-linked deals announced on Monday, the larger of which is the £675m-equivalent of euro and sterling five-year non-call two senior secured notes from True Potential, the UK financial services company. Proceeds from the issue will be used to refinance its acquisition by the private equity firm Cinven. Through its proprietary technology platform, True Potential provides advisory services, wealth management and investment strategies to its clients. This week’s deal is being run by Credit Suisse and the notes are expected to be rated B1/B. Nordic equipment hire company Renta is also in the mark
It is shaping up to be a busy week in the European high-yield market, with three new issues and a tap announced on Monday and one deal still in the public pipeline from last week, and if borrowers want to get deals done, they may have to stomach considerable premiums. Rising rates and diving equity markets do not make for an issuer-friendly backdrop, especially given expectations of a high level of near-term new deal supply. “New issue concessions are going to be elevated,” said one leveraged finance banker. “It is challenging to establish where the clearing level is for risk. The challenge in the secondary market is, with the amount of supply that is expected this week and next, people are going to look to the new issue market to generate alpha, which is going to drive new issue concessions even wider.” While it could be argued that it might serve some borrowers better to try and hold back, a lot see it as more prudent to get their deals done, de-risk and move on, he added. Italian football club Inter Milan is returning to the bond market to refinance debt through the sale of a €415m five-year non-call two senior secured that will be issued through Inter Media and Communication (mediaco). This entity manages and operates the media, broadcast and sponsorship business of the parent FC Internazionale Milano (teamco). Goldman Sachs is leading the issue, which is expected to be rated B+ plus by Fitch and is also expected to carry a rating from S&P. The issuer will use the funding to refinance both mediaco and teamco debt, which includes a €350.8m bond maturity at the end of this year and the refinancing of a €50.8m credit facility. “These types of deal can be interesting because they are quite new and people often run towards these sectors,” said a second banker. “When people started doing these mediaco deals five or six years ago, you would be working with maybe 10 accounts, and it took them a long time to get comfortable. Now it feels like has its own little ecosystem and a lot people are talking about sports financing. They like that they can finance media rights rather than assets.” Mediaco deals, such as Inter’s proposed bond, benefit from preferential recourse to media and commercial revenues, which can provide some insulation from operational risk. “The cashflow waterfall at Inter Media gives investors a senior claim on pledged revenues that ensures payments are made to investors, and reserve accounts are funded, before any distributions are made to teamco,” wrote the analysts at Fitch. Inter Media and Communication has two revenue streams: media, through which it generated €214.7m of adjusted revenues during the 12 months up to the end of September 2021; and sponsorship, through which it generated €74.3m during the same period. Covid-19 has had a significant impact on Inter Milan’s finances. Revenues have been weighed on by no or partial fan attendance, while player wages have increased. Meanwhile, expectations are that international sponsorship revenue will also decline in the coming years. Looking at Inter Milan’s consolidated credit profile, Fitch forecasts leverage of 21x in the club’s financial year 2023, falling to 9.5x the year after and 5.6x in 2025.Acquisition financing There were also a pair of acquisition-linked deals announced on Monday, the larger of which is the £675m-equivalent of euro and sterling five-year non-call two senior secured notes from True Potential, the UK financial services company. Proceeds from the issue will be used to refinance its acquisition by the private equity firm Cinven. Through its proprietary technology platform, True Potential provides advisory services, wealth management and investment strategies to its clients. This week’s deal is being run by Credit Suisse and the notes are expected to be rated B1/B. Nordic equipment hire company Renta is also in the mark
Norwegian oil and gas company Var Energi has launched pre-marketing for an all-secondary Oslo IPO that could see the company valued at more than US$10bn. An exact deal size is yet to be determined but the company has requested an exception from Norwegian listing rules that require a minimum 25% free-float, a banker involved said. Shares are being sold by majority owner Italian oil major Eni and Norwegian private equity firm HitecVision. Eni owns 69.85% and will retain a majority stake post-IPO. The two shareholders said in October that they were planning to review the ownership structure of Var Energi to boost growth and value creation. HitecVision first invested in Var Energi in 2016 when it merged Core Energy, Spike Exploration and Pure E&P to form Point Resources, which it merged in 2018 with Eni Norge to form Var Energi. Var Energi's activity spans oil production and exploration in the North Sea, Norwegian Sea and Barents Sea. With US$3.1bn in dividends paid out by Var Energi since January 2019, its status as a yield stock is expected to be a draw for investors. The company said it is planning a US$200m payout for the first quarter, and a minimum US$700m for full-year 2022. Some investors consider the figures to be somewhat on the conservative side, according to the banker, with current commodity prices, future tailwinds and plans for growth over the coming years pointing to higher potential dividend. Ebitda for the nine months to September 30 was US$2.73bn, up from US$1.13bn in 2020. The company recorded a free cashflow of US$1.86bn for the 12 months ended September 30. Gas production accounted for 37% of Var Energi's average net production for the three months to September 30. The fact that gas is a considerable chunk of the company's production works to differentiate the company from main peer Aker BP, the banker said. With gas prices soaring, the float is launching at an opportune time for commodity stocks despite a generally murky wider market backdrop. Indications of support from local institutions was already coming in on day one of pre-marketing, which wraps up on January 31. Six or seven days of bookbuilding will follow, putting pricing around February 7. Addressing its ESG profile, the company said it is aiming to be the safest operator on the Norwegian continental shelf, with a net-zero emissions target by 2030. "ESG is not necessarily a show-stopper for the buyside, but more of a consideration," said a second banker involved in the deal. DNB Markets, JP Morgan, Morgan Stanley and SpareBank 1 Markets are joint global coordinators, and joint bookrunners with ABG Sundal Collier, Bank of America, Carnegie, Jefferies, and Pareto Securities.
The largest US banks reveled in a record year for investment banking as M&A and equity underwriting activity surged in 2021, but now comes the bill to keep star performers in a hot jobs market. Bankers are expecting record pay and bonuses for a grueling year and banks have socked away billions more than in previous years to meet those expectations. The big five US banks put away 15% more last year for compensation costs than in 2020 – a rise of US$18.1bn to US$142bn. JP Morgan, Citigroup, Bank of America and Morgan Stanley all lifted pay by at least 10%, but Goldman Sachs led the way, with the amount it will pay its employees jumping 33%, or US$4.4bn, to US$17.7bn, exceeding its reputation for paying for performance. “JP Morgan and Goldman have sent a message that they intend to win the war for talent in banking,” said Wells Fargo bank analyst Mike Mayo. “I haven’t seen a battle this intense in the three decades I’ve been covering banking.” Goldman's shares fell 7% on the day of its results due to concern about rising costs, in particular the wage bill. "On compensation, our philosophy remains to pay for performance, and we are committed to rewarding top talent in a competitive labour environment," Goldman CEO David Solomon told analysts on a conference call. He said he had a personal priority to invest in the bank's people. “In 2021, we demonstrated this commitment not only through our pay-for-performance approach, but also by supporting our people in a variety of other ways, including new benefits and investments in health and safety.” Goldman also added a net 3,400 staff last year, an 8% increase. Its compensation bill equated to average annual pay of US$404,000 for each of its 43,900 employees, up 23% from the average in 2020. While compensation at JP Morgan rose more modestly, it was still up 10% to US$38bn last year, and pay expense inside its corporate and investment bank rose 13% from 2020 to US$13.1bn, including a 20% jump in the fourth quarter. In Morgan Stanley’s securities group compensation rose 10% to US$9.1bn. Compensation across the bank rose 18% to US$24.6bn. Pay at Goldman and in JP Morgan and Morgan Stanley's investment banks last year was up 20% from the year before on average. Citigroup and BofA do not break out pay by division. Margin squeeze The results confirmed the war for talent that has been raging on Wall Street, and the big banks have been using considerable resources to win and retain bankers. JP Morgan was among the first to boost starting salaries for junior bankers above US$100,000, which was quickly matched and exceeded by rivals. Last week JP Morgan lifted that salary to US$110,000, with pay rising by US$15,000 in the second year and another US$10,000 – to US$135,000 – in the third year. The increase brings JP Morgan in line with other banks that reached those levels last year and could kick off another round of bidding. “As we've always said, we're going to be very, very competitive on pay,” JP Morgan CEO Jamie Dimon told analysts on the fourth-quarter earnings call. Dimon said the bank had set aside US$1bn in merit increases for top bankers, traders and managers who did an extraordinary job in the last couple of years. “We will be competitive on pay. And if that squeezes margin a little bit for shareholders, so be it,” Dimon said. Mayo cut his estimates for bank earnings in December, expecting expenses to continue to rise this year. Across the five banks, revenue from investment banking rose 40% last year to US$54bn. Revenue from trading dipped from the record levels of 2020, but was still nearly US$102bn and one of the best years ever. Bankers across the spectrum are expecting a spectacular pay day when bonuses are handed out, and none more so than M&A bankers, said one recruiter. “It’s not exactly ‘eat what you kill’, but it's close,” he said. And banks lik
Norwegian oil and gas company Var Energi has launched pre-marketing for an all-secondary Oslo IPO that could see the company valued at more than US$10bn. An exact deal size is yet to be determined but the company has requested an exception from Norwegian listing rules that require a minimum 25% free-float, a banker involved said. Shares are being sold by majority owner Italian oil major Eni and Norwegian private equity firm HitecVision. Eni owns 69.85% and will retain a majority stake post-IPO. The two shareholders said in October that they were planning to review the ownership structure of Var Energi to boost growth and value creation. HitecVision first invested in Var Energi in 2016 when it merged Core Energy, Spike Exploration and Pure E&P to form Point Resources, which it merged in 2018 with Eni Norge to form Var Energi. Var Energi's activity spans oil production and exploration in the North Sea, Norwegian Sea and Barents Sea. With US$3.1bn in dividends paid out by Var Energi since January 2019, its status as a yield stock is expected to be a draw for investors. The company said it is planning a US$200m payout for the first quarter, and a minimum US$700m for full-year 2022. Some investors consider the figures to be somewhat on the conservative side, according to the banker, with current commodity prices, future tailwinds and plans for growth over the coming years pointing to higher potential dividend. Ebitda for the nine months to September 30 was US$2.73bn, up from US$1.13bn in 2020. The company recorded a free cashflow of US$1.86bn for the 12 months ended September 30. Gas production accounted for 37% of Var Energi's average net production for the three months to September 30. The fact that gas is a considerable chunk of the company's production works to differentiate the company from main peer Aker BP, the banker said. With gas prices soaring, the float is launching at an opportune time for commodity stocks despite a generally murky wider market backdrop. Indications of support from local institutions was already coming in on day one of pre-marketing, which wraps up on January 31. Six or seven days of bookbuilding will follow, putting pricing around February 7. Addressing its ESG profile, the company said it is aiming to be the safest operator on the Norwegian continental shelf, with a net-zero emissions target by 2030. "ESG is not necessarily a show-stopper for the buyside, but more of a consideration," said a second banker involved in the deal. DNB Markets, JP Morgan, Morgan Stanley and SpareBank 1 Markets are joint global coordinators, and joint bookrunners with ABG Sundal Collier, Bank of America, Carnegie, Jefferies, and Pareto Securities.
Signs that investors' desperate search for yield, so prominent in recent years, could be coming to an end began to emerge last week when a sharp rise in government debt yields claimed 2022's first deal casualty. And with the market going through the resulting readjustment, the going may be far from easy for some asset classes. Austrian lender Raiffeisen Bank International was forced to pull the 15-year part of a dual-tranche covered bond exercise after lead managers (Barclays, BNP Paribas, Commerzbank, ING, Mediobanca and RBI itself) failed to muster enough demand for a €250m trade. And while the State of Berlin managed to get a €500m 30-year over the line, the issuer had to lean on lead managers who put in €125m of orders in the €500m book. It is very unusual for a covered bond to be pulled. Especially in January and especially in recent years when central banks have unleashed vast amounts of liquidity into financial markets, leading to a compression in valuations across asset classes and leaving investors with little choice but to either go down the credit curve or move along the duration curve in order to make returns. However, that tide is turning as central banks begin to withdraw cheap liquidity and raise rates. “The Fed has accounted for the vast majority of global QE, so once they start to tighten, everyone has to follow," said a head of syndicate. While the European Central Bank is not in lockstep with the US Federal Reserve, the pull higher in yields is still hard to resist. The 10-year Bund hit 0% for the first time since 2019 last week while two-year US treasury yields hit 1% for the first time since February 2020. "In euros particularly, the big issue is the fact that we’re transitioning to a positive state," the head of syndicate said. "All our rates have been negative, so for a lot of people, going into a positive rate environment, that changes how you think about the opportunity cost. Where rates are negative, your opportunity cost is zero, that’s good enough. Now, there’s a good chance that the risk-free rate will have better value at some point and you have to look at things differently.” Already, the universe of negative yielding debt has shrunk. Just over 52% of euro government bonds were negative yielding on January 18, well below the over 72% figure of December 2020. And recent issuance patterns suggest that borrowers are focusing more on the shorter part of the curve. Ten-year SSA issuance, for example, has already reached €44.5bn this month, the highest volume of the last five years by the same point, according to IFR data. "Duration is going to be a challenge," a head of DCM said. "EU sovereigns have flocked to duration in recent years. They've had it pretty good as investors moved along the yield curve but if we see the yield curve invert, who is going to want to lock in these rates at the long end?" It is not just SSA borrowers that are going shorter. For covered bond issuers, the greatest depth of demand is below the 10-year point as shown by Bank of Montreal which priced a post-global financial crisis record-breaking €2.75bn five-year trade last week. Meanwhile, Banco Santander's €1.5bn three-year non-call two senior preferred was the first time the Spanish bank had raised such short-dated debt in a decade. "If you come to market now with the high beta credit at the front end of the curve, it flies," said the head of syndicate. "It’s basically perfection. If you say buy 'high beta longer', I’m not even sure it’s a price discussion. I think people would say: 'I don’t need to take that level of risk to capture what I deem to be a sensible coupon or yield'. It’s a mentality change." Not everyone is as gloomy about access to the long end, however. "I think it's a nuanced story," another head of DCM said, adding that once the market stabilised, investors would return to the long end to pick-up levels the
The largest US banks reveled in a record year for investment banking as M&A and equity underwriting activity surged in 2021, but now comes the bill to keep star performers in a hot jobs market. Bankers are expecting record pay and bonuses for a grueling year and banks have socked away billions more than in previous years to meet those expectations. The big five US banks put away 15% more last year for compensation costs than in 2020 – a rise of US$18.1bn to US$142bn. JP Morgan, Citigroup, Bank of America and Morgan Stanley all lifted pay by at least 10%, but Goldman Sachs led the way, with the amount it will pay its employees jumping 33%, or US$4.4bn, to US$17.7bn, exceeding its reputation for paying for performance. “JP Morgan and Goldman have sent a message that they intend to win the war for talent in banking,” said Wells Fargo bank analyst Mike Mayo. “I haven’t seen a battle this intense in the three decades I’ve been covering banking.” Goldman's shares fell 7% on the day of its results due to concern about rising costs, in particular the wage bill. "On compensation, our philosophy remains to pay for performance, and we are committed to rewarding top talent in a competitive labour environment," Goldman CEO David Solomon told analysts on a conference call. He said he had a personal priority to invest in the bank's people. “In 2021, we demonstrated this commitment not only through our pay-for-performance approach, but also by supporting our people in a variety of other ways, including new benefits and investments in health and safety.” Goldman also added a net 3,400 staff last year, an 8% increase. Its compensation bill equated to average annual pay of US$404,000 for each of its 43,900 employees, up 23% from the average in 2020. While compensation at JP Morgan rose more modestly, it was still up 10% to US$38bn last year, and pay expense inside its corporate and investment bank rose 13% from 2020 to US$13.1bn, including a 20% jump in the fourth quarter. In Morgan Stanley’s securities group compensation rose 10% to US$9.1bn. Compensation across the bank rose 18% to US$24.6bn. Pay at Goldman and in JP Morgan and Morgan Stanley's investment banks last year was up 20% from the year before on average. Citigroup and BofA do not break out pay by division. Margin squeeze The results confirmed the war for talent that has been raging on Wall Street, and the big banks have been using considerable resources to win and retain bankers. JP Morgan was among the first to boost starting salaries for junior bankers above US$100,000, which was quickly matched and exceeded by rivals. Last week JP Morgan lifted that salary to US$110,000, with pay rising by US$15,000 in the second year and another US$10,000 – to US$135,000 – in the third year. The increase brings JP Morgan in line with other banks that reached those levels last year and could kick off another round of bidding. “As we've always said, we're going to be very, very competitive on pay,” JP Morgan CEO Jamie Dimon told analysts on the fourth-quarter earnings call. Dimon said the bank had set aside US$1bn in merit increases for top bankers, traders and managers who did an extraordinary job in the last couple of years. “We will be competitive on pay. And if that squeezes margin a little bit for shareholders, so be it,” Dimon said. Mayo cut his estimates for bank earnings in December, expecting expenses to continue to rise this year. Across the five banks, revenue from investment banking rose 40% last year to US$54bn. Revenue from trading dipped from the record levels of 2020, but was still nearly US$102bn and one of the best years ever. Bankers across the spectrum are expecting a spectacular pay day when bonuses are handed out, and none more so than M&A bankers, said one recruiter. “It’s not exactly ‘eat what you kill’, but it's close,” he said. And banks lik
The ESG market places “too much reliance on ratings”, although this problem will potentially work itself out as the industry matures and regulators and professionals find the right balance between supervision and autonomy, according to Martin Maloney, secretary general of Madrid-based IOSCO. Government regulators and multinational groups, including the International Organization of Securities Commissions, have been closely vetting the market for ESG finance amid a surge of interest and deal volume. Among the challenges in this nascent industry has been the confusing sets of standards and methodologies that go into evaluating an issuer’s environmental credentials and earn them green labels, second-party opinions and ESG ratings – as well as investor confidence. Absent more substantive, dependable data on vital things like carbon and methane emissions, money managers often rely too heavily on these evaluations, Maloney argues. “In a mature, well-serviced market, ratings are part of a broader market analysis and assessment process where information is combined and digested according to the investment appetites of customers,” Maloney said in a written response to IFR questions. “We have too much reliance on ratings when it comes to ESG matters at the moment because that ecosystem of information, market analysts and ESG investment managers is only in its infancy.” At present, ratings providers bear a “huge burden of responsibility”, he said. At the end of last year IOSCO, whose members include the US Securities and Exchange Commission, called for greater oversight of ESG ratings and data providers in a 53-page report detailing its concerns. The report found, among other things, that there was a lack of clarity about what ratings or data products intend to measure and a lack of transparency about the methods used to produce the ratings. Trickle-down effect “They have to build trust through good management of conflicts of interest, strong transparency about their methodologies and openness about the limitations of their ratings,” said Maloney, who joined IOSCO as secretary general in September. The oversight of ESG financing as a whole has become more important as the amount of money backing these apparently benevolent concepts has grown quickly. The global market for ESG bonds, for example, hit a record US$985.6bn in 2021, with 44% year-on-year growth, according to Refinitiv data. As volumes continue to surge, the SEC and other agencies are expected to provide guidance on crucial practices like corporate disclosures that are intended to improve the quality of data that investors and ESG ratings providers use to gauge assets. “I am very confident that as we improve the quality of issuer information there will be a trickle-down effect into ratings,” Maloney said. The ESG ratings industry has already been affected by the regulatory changes made to the credit ratings industry in the wake of the 2008 credit crisis. Many of the newer rules related to credit spelled out in the 2010 Dodd-Frank Act are being used to at least help guide the ESG industry. Among other things, credit ratings regulations have helped set standards for the “precision of methodology and responsiveness to market developments” and imposition of fines, Maloney said. They have also “encouraged investors not to rely mechanistically on these ratings” and helped establish working relationships between regulators and agencies.Quite hopeful In both industries – as in the financial markets as a whole – it is also possible to manage any inherent conflicts of interest that may arise from practices like an issuer-pays model for ratings. Eliminating the conflicts is not the only way to manage them, he said. “It is quite feasible to manage conflicts of interest,” he said. “Indeed, managing conflicts of interest is essential to developing viable
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