Commodity Derivatives House

To see the full digital edition of the IFR Review of the Year, please click here.Ally Financial sought bankruptcy protection for its sub-prime mortgage unit Residential Capital on May 14 after months of carefully choreographed negotiations. Among the most important steps was locking up financing that would keep ResCap from triggering defaults on its mortgage servicing contracts – defaults which would have allowed trustees to snatch lucrative servicing pacts, setting off an all-out war among creditors.Barclays stepped in to underwrite a US$1.45bn debtor-in-possession facility for ResCap, but the deal wasn’t so simple. Indeed, the UK bank had to navigate a labyrinth of potential conflicts and pitfalls in order to make the DIP work.ResCap’s collapse meant it was cut off from the capital markets and faced a mountain of debt and a larger mountain of mortgages being put back to it from Ginnie Mae and private investors on representation and warranty claims. At the same time, the company’s cost of operations was ballooning as mortgage defaults rose. The biggest drain on liquidity was meeting obligations to make advances to cover certain shortfalls to investors in mortgage pools.As Barclays stepped in those advances became the key to a new financing package. The bank was already sole lender on an existing US$468m facility and comfortable lending against the assets, which are repaid on a priority basis, making loans against the stream – up to a percentage – relatively safe.ResCap chief financial officer Jim Whitlinger said the company met with multiple advisers and the financing approach proposed by Barclays was the most beneficial to the estate by far. “It was the most creative and the least cumbersome solution,” Whitlinger said.The resulting DIP – a US$200m revolver, a US$1.06bn A1 Tranche and a US$200m A2 Tranche – was a hybrid that combined a leveraged loan using securitisation technology on an asset class that is barely understood, for a company that is facing intense regulatory scrutiny around its mortgage business. Both tranches flexed tighter. “We were able to get comfortable with the cost of financing – other banks we looked to bring in were not,” said Mark Shapiro, Barclays’ head of global restructuring and finance.Barclays was able to get ResCap a liquidity lifeline at funding cost of roughly 6% – 300bp better than other deals the company looked at.“These are somewhat esoteric assets,” Shapiro said. “This was not your traditional inventory receivables ABL-type lending.” To complete the loan, Barclays would draw on the resources of its leveraged finance team, its syndicate desk, its securitised product group and the FIG team.In addition to the private label servicing advance rights, the DIP is backed by a portfolio of whole loans.Barclays decided to structure the loan as a leveraged loan and not a securitisation one because of where the natural buyer is for this type of product. It was able to bring in both leveraged loan investors that were getting access to investment-grade collateral, which they do not normally have, and some high-grade investors that typically never buy DIP paper but crossed over for this deal – more than 100 in all.Barclays’ previous position was taken out with the new DIP, as was a US$250m repo facility. The collateral freed up from repaying the facilities became part of a US$1.67bn first-lien collateral package. The DIP, which sat along five secured DIP-like facilities in ResCap’s capital structure, would take a second lien on another US$1.47bn in collateral, bringing the total collateral package to US$3.14bn. With the DIP, including the US$200m revolver, ResCap had access to more than US$1.1bn.The highly structured DIP has 40 different events of default. Part of the package of protection Barclays offered investors in the DIP was to guarantee that a sales process would take place and a buyer would be in place before the first draw.That made it effectively a bridge loan that gave ResCap breathing room to

To see the full digital edition of the IFR Review of the Year, please click here.Record issuance volumes, an extraordinary number of deals, currency diversification, product development – the Emerging EMEA bond market has never witnessed as thrilling a year as 2012.Issuance volumes reached US$126bn from 184 deals in the year to November 15 from the countries under consideration, according to Thomson Reuters data, as borrowers took advantage of low yields, tighter spreads and huge inflows into hard currency emerging markets funds seeking new supply.In the beginning of January, when the iTraxx SovX CEEMEA index was trading at about 350bp, it seemed inconceivable that the year would pan out the way it did. By November, however, the same index was hovering around the 180bp mark, thanks to these strong technical supports, which in turn were sustained by market-support measures from the world’s central banks.All the leading banks made hay, especially in the period after US Labor Day as the market began to take on bubble-like characteristics. But two firms led the way in terms of issuance volume and deal numbers – Citigroup and JP Morgan.It was these two US banks that vied for IFR’s Emerging EMEA Bond House of the Year, with Citigroup taking the mantle, though a mention should also go to BNP Paribas.The latter might not have the league table ranking or deal numbers of others. Considering the future of certain French banks (though not BNP) was rumoured to be under threat at the end of 2011, the fact that the firm consolidated its position with some standout deals – Russia, Slovenia, Dolphin Energy, First Quantum Minerals – deserves recognition.Ultimately, however, BNP lacks the breadth of business that JP Morgan and Citigroup can deliver – the French bank failed to lead a meaningful mandate from Turkey in 2012, for example.First classJP Morgan remains a first-class emerging markets house whose business in Russia and the CIS and Turkey, is particularly impressive. It has also been the most consistent performer over the past five years. Yet Citigroup is once more a force to be reckoned with, printing, at 62, more deal tranches than any other bank in the period under review.The bank also heads the league table – at just under US$16bn, according to Thomson Reuters.“It’s the best year we’ve ever had,” said William Weaver, head of CEEMEA debt capital markets at the bank.It printed six of the first seven CEEMEA deals of 2012 and never looked back.Citigroup also ticked the most boxes. It was on the first deal of 2012 (South Africa), the first sukuk of the year (First Gulf Bank), the first bank capital transaction of the year, in a deal that reopened the Russian market after a two-year hiatus (Nomos Bank), the first hybrid Tier 1 perpetual note in the region (VTB), the first euro-rouble offering of the year (Russian Agricultural Bank) and the largest non-Middle East sukuk (Turkey).Geographically, Citigroup was strong in all the key regions: Russia and the CIS; Turkey; Central Europe; South-East Europe; the Middle East and Africa.In Russia, for example, Citigroup won arguably the most sought-after mandate – the sovereign, which is IFR’s Emerging EMEA Bond of the Year. The firm was the only lead manager retained from Russia’s last international transaction, its much-hyped but ultimately poorly received comeback after a decade-long absence, in 2010.Citigroup was also involved in the most talked about CEE deal – VTB’s US$1bn hybrid Tier 1 non-call 10.5 perpetual note (subsequently tapped for a further US$1.25bn in a self-led reopening). It may have lacked the momentum generated by subsequent FIG subordinated bond offerings, as the flexible structure left many would-be investors unsure about what they were buying, but it heralded a new era for the CEEMEA bank capital market.In Turkey, Citigroup was involved in three of the sovereign’s four visits to the US dollar market in 2012, including the sukuk, which, given the rotation that usually takes plac

Alistair Darling had little idea of exactly what he was buying when he signed off on a £20bn state rescue of the Royal Bank of Scotland just after 6am on October 13 2008. The collapse of Lehman Brothers four weeks before – the biggest bankruptcy in history – had sent markets into a tailspin, halting interbank lending. Days earlier, RBS chairman Tom McKillop had called Darling to warn that the bank was hours from collapse, precipitating the decision to take the world’s largest bank into public ownership. Events had progressed so quickly that neither Darling nor anyone within the UK government had had a chance to look at the bank’s books. RBS was sitting on £2.2trn of assets, then equal to the annual GDP of the UK and Spain combined, but nobody knew how bad those books were. The bank’s chief executive Fred Goodwin, then a knight of the realm, had grown so suspicious of RBS’s own accounts that he had asked one of his lieutenants to fly in for a second opinion just a few weeks before. “What we were bothered about was the general condition of British banks, many of which had the look of death about them,” said Darling, then Chancellor of the Exchequer. “They just didn’t have enough capital. We were drawing up plans, but we couldn’t share details with banks. We couldn’t do due diligence because of the lack of time.” It was months before the dire state of RBS’s finances would become clear. The bank was in a far worse position than had been imagined; it was stuffed with worthless junk. Darling later learned the bank owned a golf course in Florida that was 70 miles from the nearest road and a cemetery in the US Deep South. What began was a long process that is still ongoing to clean up the books, return to profit and pave the way for the government selling its stake. Goodwin had agreed to go as a price for the rescue. But McKillop and Johnny Cameron, who was head of the global banking and markets division, insisted on holding on to their jobs for a few more months. Eventually, the two backed down. Stephen Hester, an investment banker by trade and former boss of British Land, took the CEO role, while Philip Hampton became chairman. John Hourican, the man asked by Goodwin to re-examine the books, took the helm at GBM. The bank was still haemorrhaging money, not least in GBM. Emergency liquidity from central banks had helped stabilise things, but many of RBS’s assets were plunging in value by the day. “The turnaround strategy was to salvage whatever it could from the ruins – to save whatever could be saved initially,” said Darling, who said he never considered closing down GBM. “It was all about crisis management. It was never a case of splitting out the retail bank and running down the investment bank.” “We all had an on-the-beaches attitude at the time,” said Hourican, who until Goodwin called him back had been working in Amsterdam unpicking RBS’s joint acquisition of ABN AMRO in what then was the biggest bank takeover in history. “The problems we were discovering were large and continuous. Every day, we would see the value of the assets we were sitting on move significantly – and usually down. A lot of the stuff on the balance sheet was becoming rapidly illiquid and very difficult to value.” What started were many months of shrinking the books, a task which soon fell on Peter Nielsen, the former head of rates who was quickly placed in charge of the markets business, which generated the lion’s share of GBM revenues. “In those early days, every single day was spent trying to get the books down, making sure the books were smaller at the close of business than they had been at the beginning of the day,” he said. “It was a very difficult period. A lot of the systems we relied on had helped bring down the bank. It was like flying in the dark with

For a time, it seemed senior bankers spent as much time testifying (often utterly incompetently, occasionally with breath-taking arrogance) in front of parliamentary and Congressional hearings as they did doing deals or navigating their institutions through the choppy waters that are the modern financial markets.For the first time IFR seriously considered not awarding a Bank of the Year. But, in the end, we reached the conclusion that it would be unfair to those banks that have continued to behave properly in extremely trying circumstances.It is our judgement that BNP Paribas is one such institution. The way the French bank reacted to the crisis that engulfed it in 2011 when US money-market funds refused to roll over funding was admirable. Finally, here was a bank in the middle of the storm able to respond with speed, ruthlessness and wisdom.The bank is consequently in good shape for the future. It has gone through the sort of soul-searching about what it should be and what it should do that other, bigger organisations have put off time and again.Just as importantly, BNPP is in a position to keep making a decent return for its shareholders. One of the criticisms of the banking industry that struck with most force in the aftermath of the financial crisis was that the industry had been captured by those who were supposed to be working on behalf of its real owners. Persistently tiny returns on assets and equity (at the same time as stubbornly high comp ratios) was Exhibit 1.BNPP, on the other hand, has made money for its shareholders. Not only is its stock up 50% since the beginning of 2012, but its annualised pre-tax ROE in the corporate and investment bank is above 20%.Those are important boasts, though the bank’s biggest challenge now will be to maintain those numbers as it begins to judiciously build again.Other winners have much to be proud of too. It is through these awards that IFR recognises the finance industry’s ability to drive intelligent deal-making that benefits issuers, investors and the wider economy.The industry is not perfect and still has much work to do to regain public trust, but as politicians, regulators and commentators are finally realising, finance is the very lifeblood of economies. Without it, the modern world can barely exist.So finance is not just some necessary evil to be tolerated. It is not fashionable to say so – and after the past year that is understandable – but the efforts of the finance industry should be celebrated, in all their messy, creative and exuberant brilliance.That’s what we hope these awards do.To see the full digital edition of the IFR Review of the Year, please <a href="http://edition.pagesuite-professional.co.uk//launch.aspx?eid=24f9e7f4-9d79-4e69-a475-1a3b43fb8580" onclick="window.open(this.href);return false;" onkeypress="window.open(this.href);return false;">click here</a>.To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

To see the full digital edition of the IFR Review of the Year, please click here.In a market as patchy as pure equity-linked – convertible and exchangeable bonds – success relied more than ever on structured equity. The broader definition includes those ideas that take the best of cash equity, equity-linked and corporate derivatives to form alternative structures to suit issuers and investors.In 2012, Goldman Sachs used simple derivatives to make both equity and equity-linked trades possible. This included the inclusions of puts and calls as part of accelerated bookbuilds in Europe and the securing of asset swaps at a bargain level for Sony, a defining transaction late in the year.Goldman won this award in 2011 on the strength of its success in the US and Asia-Pacific and for its investment in Europe, with the caveat that the latter region was a work in progress. To make that work, the bank bought in Antoine de Guillenchmidt and his team from Morgan Stanley, the top ranked bank in Europe for several years.The investment paid off: having failed to be placed inside the top 10 in Europe in the previous two awards periods, Goldman was third by late October, before large offerings from Nokia and VW pushed it back to sixth.The league table tracks transactions for Lufthansa, Shoprite in South Africa and the Finnish government (through its Solidium holding company), but when non-league table eligible equity derivative transactions are also taken into consideration the bank can point to even greater progress.“The contribution from our EMEA business to Goldman Sachs’ overall global equity-linked activity has gone from 3% in 2011 to 30% in 2012,” said Jason Lee, global head of equity-linked based in New York.Key to this growth was leveraging where the bank was strong in cash ECM – in particular around accelerated placings – and using this to drive structured situations.Transactions in Norwegian oil services firm Seadrill, which included shares and puts, and in Turkish flat steel producer Erdemir, where warrants were packaged with the shares, were key examples. Both transactions used a sweetener to attract additional interest at a tighter price than was otherwise thought possible.In the event both stocks traded down. Seadrill’s fall showed that in the worst case the average exit price was around where a straight equity sale would have been completed, while Erdemir’s drop showed seller ArcelorMittal had effectively sold nothing for something with the warrants.Goldman bankers argue that not only did the trades improve pricing but it may not have been possible to complete them as cash transactions. Erdemir was illiquid, while the sight of Seadrill’s major shareholder John Fredriksen selling US$1bn of stock may have scared off investors. Whether this was true or not, the bank provided structures that suited both sellers and buyers, and had the additional benefit of ensuring sole bookrunner credit and improved margins over a straight equity sale. Seadrill was one of the ECM team’s most profitable trades of the year.The bank also leveraged its core equity strength on the exchangeable and equity for Solidium into TeliaSonera and the concurrent equity and convertible offering by Shoprite.The Finnish state sale through its holding company in two parts suited Goldman due to its strength in overnight transactions.“We were the obvious choice for the accelerated bookbuild, but not for the exchangeable bond,” said de Guillenchmidt.Pricing on the €600m exchangeable came at the best terms for the issuer with a 0.5% coupon and the €451m equity sale priced at a 4.8% discount. Within 24 hours, the bank was back with another two-part trade for South African supermarket operator Shoprite that raised US$1bn and involved Goldman as joint bookrunner with Morgan Stanley.Structuring is keyA transaction for Lufthansa was an opportunity to link between regions as the German airline used its stake in US carrier JetBlue in order to minimise funding costs. Historic vol

To see the full digital edition of the IFR Review of the Year, please click here.The method with which Citigroup has rebuilt its equity capital markets business in the US is, without doubt, controversial. The bank upset the US ECM apple cart – and rival bankers – by opening its chequebook to buy block transactions.Doing so led to Citigroup ending IFR’s 2012 awards year in top spot for US ECM with league table credit of US$25.5bn across 182 deals. The bank’s 12.5% market share was comfortably ahead of the 11.2% earned by both Bank of America Merrill Lynch and Barclays.But it is the trajectory of the past three years that truly marks out the bank. In 2010, the bank’s market share was just 4.9% (if its self-led US$17.6bn follow-on is excluded) while in 2011 it was 8.6%.The 2010 performance was perhaps artificially low as the institution was still rebuilding and some of the gains in the past two years represent reversion to the mean. But there is no doubt that Citigroup’s ECM team is now batting well above average.Breaking the cartelThe bank reached this level by aggressively committing capital to purchase blocks of stock from corporations and financial sponsors.Block trades are now an established part of the ECM landscape in the US, as they have been for many years in Europe and Asia. Many ECM bankers do not like the practice but it is here to stay.That ECM pros dislike blocks is not surprising, as such deals often result in lower fees for taking more risk.Standard marketed selldowns typically pay bankers around 4% (a bit less for small deals, a bit more for large deals). Citigroup’s aggressive encouragement of risk trades undoubtedly undermines that – to the benefit of clients. Sellers of stock, after all, love exactly what bankers hate – they get risk-free solutions and pay less for the privilege. “There is no need for a company that is highly liquid and can access the capital markets very efficiently to pay a 5% gross spread across multiple bookrunners,” said Phil Drury, who runs ECM for the Americas at Citi with Doug Adams.And clearly if Citigroup can earn more than 1% on a sole-led risk transaction the rewards are greater than a 5% spread split five ways (even if the risks are increased).Competitors decry the practice as unsophisticated and little more than an attempt to purchase league table credit, going so far as to point out the irony that an institution that breached on risk would make risk the foundation of its ECM business.Another reason rivals hate Citigroup’s focus on blocks is that it has allowed it to tempt away hitherto loyal clients.“Defending your clients is part of capital markets. If you leave them open, then we are going to come in and take them,” said John Chirico, Citigroup’s head of capital markets origination for the Americas.It is also a fact (one that some don’t like to acknowledge) that block trades require something which should be fundamental to a good ECM operation: an accurate read on where demand lies for a particular stock and at what price it clears.Whatever the rights and wrongs, though, the growing demand from corporations and sponsors is indisputable.A total of US$76.1bn in stock sales was conducted on a capital-committed basis during the awards year, nearly half of overall follow-on volumes (US$160.8bn) and by far the highest figure in history – the previous high watermark of US$18.5bn occurred in 2004, according to Thomson Reuters.The art of the blockOf course, not all blocks are the same. The trick is to avoid where possible the “dumb risk” of bidding wildly in an auction in favour of backstopping deals following exclusive negotiations with a seller. Citigroup claims plausibly to have achieved a sensible balance between the two.Citigroup’s US$1.13bn purchase of Ventas shares on January 4 sent shockwaves through the ECM community, but validates the bank’s claim. The commitment, the largest ever for a REIT stock sale and the fifth-largest purchase of stock in any sector, was all-secondary,

To see the full digital edition of the IFR Review of the Year, please click here.Issuers from all over the globe turned to US dollar bonds. Dollar-denominated issuance totalled a whopping US$900bn in the IFR Awards year.In the midst of such a red-hot market, JP Morgan eclipsed its competitors in the league tables. Over that period, JP Morgan captured an 11.8% share of the overall high-grade and high-yield market for dollar bonds, leading 510 deals totalling US$106.3bn. That was well ahead of closest rival Citigroup, which had a market share of 9.3% after leading 432 deals for US$83.8bn.But the raw numbers alone do not tell the whole story of the impressive performance of JP Morgan, which is IFR’s High-Yield Bond House of the Year as well as its Global US Dollar Bond House.Quality of execution, and superb distribution across products and regions, made the bank the clear standout this year.In a market that saw low-coupon records broken regularly, underwriters were under more pressure than usual to deliver clients the most cost-effective funding solution. And JP Morgan managed to meet those expectations consistently.“We blazed the trail in capital markets in 2012,” said Huw Richards, JP Morgan’s co-head of investment-grade finance. “We helped our clients set low-coupon records, navigate volatile markets, re-optimise debt portfolios, achieve mission-critical financings across products, and access different markets.”In the US, JP Morgan was one of six bookrunners on the late July deal from Bristol-Myers Squibb, which sold a US$2bn three-parter with the lowest ever corporate bond coupon in the five and 30-year tenors. It was the first time a five-year printed inside of 1%, eventually winding up at 0.875%.The bank was also underwriter on transactions for Texas Instruments, Unilever, Sysco, Colgate, Heineken, Walgreens and Kellogg’s – all of which set low-coupon records.It also succeeded in getting some particularly tricky deals done. Smiths Group pulled its US$400m trade after it was led by other bookrunners – but JP Morgan got it priced in October.When News Corp was getting deluged with negative headlines (and litigation), JP Morgan priced a US$1bn 10-year transaction while serving as sole active bookrunner – itself an achievement.The bank’s distribution capabilities ensured the issuer got an attractive pricing with the lowest 10-year Triple B media coupon at the time, and one of the lowest Triple B prints ever.Making a big dealWhen it came to jumbo trades, JP Morgan was the only bank to be an active bookrunner on every one of the 10 largest trades of the year, and the only one on the three biggest liability management deals as well. It was also a bookrunner on market-defining spin-off deals such as those for Phillips 66 and Kraft Foods.“The key strategic development in the US market in the past year has been spin financings and JP Morgan is the only bank to have been on all of those transactions,” said Richards. “We were a market leader underwriting strategic, complex and debut transactions for US financial institutions.”The Phillips 66 and Kraft trades were complicated and needed strong execution given the volatile state of the markets.Phillips 66 was a wholly-owned subsidiary of ConocoPhillips and it raised US$5.8bn through a debut bond on March 7. Proceeds were to be held in escrow until the spin-off was completed. Educating investors about the transaction was critical in ensuring its success, as the company was largely unknown to investors.The bookrunners got management to conduct calls with 45 investors and even hosted a global investor call on the day of execution, which ensured participation from more than 100 accounts. The book comprised over US$22bn in orders, guidance was tighter than initial price talk, and the deal finally priced at the tight end of guidance in all tranches.It was not a major acquisition financing year, but most of those deals that were announced this year or funded through the US bond markets were mand

To see the full digital edition of the IFR Review of the Year, please click here.Wells Fargo, the fourth-biggest US bank by assets and largest by market capitalisation, approaches the task of meeting its funding requirements with sound logic. It borrows little when funding costs are high but pounces when they are low, taking advantage of any opportunity to  reduce debt stress on its balance sheet.This strategy, simple as it sounds, is what all banks strive to achieve and Wells Fargo showed it can be done with a disciplined funding strategy in 2011 and 2012. “The way the business is structured, we can afford to be opportunistic with our funding programme because we are not entirely reliant on capital markets,” said Paul R Ackerman, executive vice president and Treasurer at Wells Fargo. “Our businesses are sitting on cash as commercial loan demand is still low so we are not as reliant on capital markets as some of our peers.”Ackerman said that deposits comprised about 70% of the bank’s overall funding while 10% comes from equity and 20% is sourced out of debt capital markets.“These funding needs are modest compared to other institutions,” he said. “Funding does not drive the business so that means we can choose when to enter the markets.”In 2011, for example, in a climate of uncertainty with spreads widening and funding costs rising, Wells Fargo raised a modest US$8.6bn from capital markets and focused heavily on liability management, redeeming about US$9bn in trust preferred securities. The bank reversed that approach in 2012, going all out with issuance totalling about US$26bn and liability management activity limited to about US$6bn.The environment was ideal. The Federal Reserve’s quantitative easing programme ensured issuer-friendly conditions in the US bond markets and though some FIG issuers were treated with caution, investors were more than welcoming of a stable bank with a solid credit profile like Wells Fargo. “We used the low spread environment to adapt to changing regulatory conditions through qualifying capital transactions, and incremental LCR bank liquidity,” said head of global funding Barbara S Brett, referring to Basel III’s liquidity coverage ratio rules.“We also optimised our balance sheet by tendering for multiple securities and calling several trust preferred securities. All this was done while achieving diversification on our funding mix through issuance of different products in various markets and currencies.”Touring the worldWells Fargo certainly spread its wings this year. It raised funds by issuing in Canadian dollars, euros, sterling, yen, Australian and US dollars – one of very few FIG issuers in the world to have done so.It continued to raise funds through structured product transactions, extendible bank notes and private placements to achieve diversity across product type. Private placements and structured product issuance totalled US$8.7bn in 2012, all of which were bespoke transactions built to investor requirements.This diversified funding mix and a solid international marketing effort brought Wells Fargo a whole new investor base, something that will hold it in good stead when it next needs the market’s support.The bank issued a number of benchmark transactions that averaged 173 investors per deal.On average, order books were a sensible 2.2 times oversubscribed which meant they were not unnecessarily inflated. The deals performed well in secondary markets in both risk-on and risk-off markets – to the delight of investors.Wells Fargo used the conditions to establish a balanced issuance of US dollar benchmarks across tenors. At the same time, it deliberately did not reopen benchmark offerings to ensure it continued to support secondary performance.The bank tapped the preferred market when retail investors were starved of paper given massive trust preferred redemptions. The bank issued US$750m of perpetual preferred stock on August 9 and followed that with a similarly structured US$650m upsized tr

To see the full digital edition of the IFR Review of the Year, please click here. It is no easy matter for a bank to deleverage, strengthen capital, secure access to alternative sources of funding and drive strategic change. It is even harder to do so without losing sight of the underlying business. But that is what BNP Paribas group chief executive Jean-Laurent Bonnafe and his executive board achieved in 2012. That the reasons for the accelerated progress of the bank’s makeover were steeped in the trauma of the second half of 2011 makes those achievements all the more impressive. “We’re back to business and ready for growth despite the uncertainties in the economy and around regulation,” Bonnafe said. “The adaptation process is behind us and we are out of the blocks ahead of most of our competitors.” The change in the external perception of the bank has been nothing short of remarkable. From the dark mutterings of 2011, after US money market funds cut dollar exposure to BNPP and other European banks, almost all analysts now rate BNPP shares “buy” or “hold” – a best-in-class performance. The bank’s share price was up 50% between January and early December 2012. Among other things, the withdrawal of US dollar money-market funding forced management to execute changes that were planned for a much longer period of time. “We were under too much pressure from stakeholders and the market to wait, so we decided to do something which would differentiate us from our competitors: do it quickly, and I mean very quickly,” said Alain Papiasse, deputy group COO and head of the corporate and investment bank. “When you take a long time to adjust, it’s easier for people because it’s less painful. But by the same token it can upset your business for a long time. Brutal decisions are more painful, but the impact is short-lived.” The transformation was impressive indeed: the bank cut dollar funding by US$65bn by April 2012, eight months ahead of schedule; exceeded the year-end capital target, hitting a 9.5% fully-loaded Basel III core Tier 1 ratio by September 30, and reduced risk-weighted assets by €45bn by September, when the target had been year-end. And because the assets that had to come off the books were good quality, the bank was in aggregate able to sell them more or less at par. The net cost of asset sales was just €250m against estimates of €800m. Management was keen to deleverage without affecting the client franchise or being accused of stop-go banking. This was all achieved. In fact, the only business the bank exited was reserve-based lending in the US, which had relatively limited synergy with the rest of the group. Beyond that, it sold a 28.7% stake in shopping centre operator Klepierre for €1.52bn. Where it exited customer relationships, these were customers who did not fit the new profile – predominantly clients to whom the bank was lending but not receiving the business it wanted in return, or who were no longer in what Papiasse calls the “magic circle”. The results of the adaptation plan were delivered at the same time as nine-month earnings showing net income attributable to equity holders of more than €6bn. CIB’s third-quarter revenues were stunning, up 33% to €2.38bn. Advisory and capital markets revenues rose 41.5% to €1.58bn; fixed income rose 38% to €1.1bn, while equities and advisory jumped 51% to €444m. Corporate banking, which bore the brunt of the RWA reduction, reported revenues in line with deleveraging at €805m, down 16.3% (net of loan sale effects). With a cost-income ratio in CIB of 61.5%, towards the bottom of the scale, and a lower risk profile than most of its competitors, the annualised pre-tax return on equity in CIB is above 20%. “Thanks to our highly differentiated CIB model built on long-term relationships with customers, we consistently deliver returns above our cost of equity and we control our costs, resulting in a lower expense ratio,” Papiasse said. Total transformation BNPP is not a monoline investm

To see the full digital edition of the IFR Review of the Year, please click here.When Bank of America Merrill Lynch – a North American colossus known for its extensive balance sheet and deep pockets – stepped back from leading roles in refinancings for large US household names in April, it marked a departure from the old model of relationship lending to America’s top companies towards a focus on increased profitability.When a US bank the size of BofA Merrill makes such a shift in strategy, the market takes note. The move highlighted a major change in the high-grade lending market, as lenders started to analyse the future revenue streams that ancillary business would bring and exited or reduced commitments on loans for well-known companies in 2012.“We have reduced the number of transactions that we’ve been looking at because we have been much more focused and heavily aligned towards our return on capital,” said Peter Hall, global head of investment-grade loans at BofA Merrill.Regulatory changes starting in 2013 will begin to make it more expensive for banks to provide backstop facilities and all lenders are revising their business models accordingly – to focus on providing more lucrative drawn loans.“We haven’t told a single client, ‘we don’t have capital for you because we don’t like you’,” Hall said. “We have told clients just the opposite: ‘we have more capital than you could ever use as long as we get paid for it’.”Despite exiting some large refinancings of well-known names, the firm’s realignment proved to be beneficial in terms of revenues and left it unscathed in terms of league table presence. In terms of number of deals, BofA Merrill led the US bookrunner league table for the awards period with a total of 1,076 loans, and came second in terms of volume with US$250bn, or a 16.4% market share.However, being more selective in terms of how the bank deploys its capital will not modify the value it puts on relationships and its bank loan lending franchise.“If you boil it down, everything starts with the loan product,” said Hall. “That’s where the original relationships starts, and everything blossoms from there. If you can get in, give [the company] good advice, lend them the capital they need, provide the structuring advice, provide the terms that they need, provide the capital when needed on a strategic basis, other things come from that: treasury management, M&A, equity, loans and bonds.”M&A leadershipIn 2012 BofA Merrill dominated the M&A-related investment-grade space by leading or participating at a senior level on almost every large acquisition that was announced. United Health Group, Chicago Bridge & Iron, Walgreens, Anheuser-Busch InBev, Abbott Laboratories, Tyco International, Watson Pharmaceuticals, Sara Lee, URS, ConocoPhillips and PerkinElmer were some of the most notable examples.For the awards period, the bank led the league table for US investment-grade M&A bookrunners with 34 deals and US$20.5bn in volume – a 24% market share.“There have been very few strategic deals in the last 12 months in the investment-grade world that we have not been part of,” Hall said.The successful syndication of Gilead Sciences’ US$10.7bn financing package in the winter of 2011 was a deal that set BofA Merrill apart from its peers. As lead arranger, the bank fully committed to the debt financing (alongside Barclays) that backed the drug manufacturer’s US$11bn acquisition of Pharmasset.The financing included US$7.7bn in unsecured bridge loans, split between a US$3.7bn bridge-to-bond and a US$4bn cash bridge. The facilities also included US$3bn in longer-term financing that consisted of a US$750m 364-day revolver, a US$1.25bn five-year revolver and a US$1bn three-year term loan.The deal was extremely challenging given the timing. The company’s original bank group consisted of mainly European banks, which declined to participate in the transaction as they were hurting amid mounting funding costs and were evaluating

To see the full digital edition of the IFR Review of the Year, please click here.The European structured finance market continues to evolve, leaving behind its roots in consumer products. Central bank liquidity pumped into the market has reduced the pressure on issuers to pursue wholesale funding in the mortgage, credit card and auto markets during 2012.Corporate borrowers, meanwhile, are more actively exploring secured and structured financing techniques as bank balance sheets become increasingly reluctant to write long-dated loans, even for their top clients.And Royal Bank of Scotland has been there to deliver these solutions, in a variety of ways. In the financials area, the bank has acted on UK, Dutch, French, German, Australian and Italian consumer assets.In RMBS, the bank’s involvement covered debut and repeat UK issues, the first Dutch 144a deal to be sold in the US market, and the first Australian RMBS in sterling since 2007.It has arranged and sold bonds in sterling, euro and brought first-time issuers in Swiss francs and US dollars.And in the UK corporate space, it has covered an array of assets: holiday villages, ports, airports, rail (even in US private placement format), water and social housing, acting as deal arranger in most cases.Breadth of businessThese successes all point to a deep bench of expertise in structuring and coverage. The business is split into financial institutions’ structured finance, headed by Lee Rochford, and the secured debt markets, led by James Miller. RBS also has a dedicated team for structured finance derivatives, reporting to Rochford.“We have the largest structuring team bar none in EMEA on the FI side of the business,” said Rochford.“In terms of pure securitisation there are a dozen professionals, but in terms of the wider structured finance skill-sets the number is closer to 50,” said Rochford.“In the corporate secured debt market RBS has over 30 professionals,” added Miller.Despite the slow public deal flow, RBS is still hiring – for instance, Rochford’s team hired veteran structurer Jennifer Wallaert from UBS in the summer of 2012, to focus on real estate and credit structuring, primarily in the private market.While it is no secret that RBS is retrenching in its weaker areas – selling its cash equities business and M&A to Jefferies being the most obvious example – structured finance remains a bright spot. Management has committed 25% of investment bank capital to this business, with no plans to shrink.RBS’s trading desk may benefit from some internal flow, but remains a 25-person team across Europe and Asia, featuring several veteran product specialists. It had traded some £12bn in 2012 up to the middle of November.This effort is complemented by a highly respected research team led by Ganesh Rajendra. One large investor praised their publications as being “unafraid to ask the hard questions and give analysis that was not always flattering to issuers”.RBS also runs a large investor conference in the autumn, which had 420 attendees this year.The bank’s corporate rating creates a business challenge for structured finance – no amount of tweaking collateral arrangements can compete with a solid rating when it comes to writing swaps – but RBS is coping, amending and restructuring its structured finance swaps rather than retreating from the market. And Moody’s made a positive reference to RBS’s approach in a credit insight publication in February.For Siena Mortgages 10-7, for example, Moody’s has set the Italian sovereign ceiling just one notch above RBS’s own rating, but the triggers in the deal were still designed to support Triple A rated securities. RBS restructured the swap agreement to be less costly if it was downgraded, without affecting the rating of the bonds.While there is still a place for top ratings, balance sheet muscle and risk-taking, increasing numbers of structured finance derivative counterparties under rating pressure have to seek innovative solutions to stay in

To see the full digital edition of the IFR Review of the Year, please click here.In a year when the number of CEEMEA deals broke the 200 mark (if each tranche is considered as a separate transaction), it’s no easy task to judge the best, especially as the second half of 2012 witnessed a number of issuances that set a new benchmark one way or another, spurred by the ECB’s Outright Monetary Transactions programme.There were some dominant themes too, with bank capital transactions by VTB, Gazprombank and Abu Dhabi Islamic Bank pushing structural boundaries. In the corporate sector, the high-yield market saw some standout deals from commodity firms in particular, while higher up the credit spectrum, Turkish brewer Efes even managed to price inside the sovereign’s curve.But the deal of the year goes to Russia’s US$7bn triple tranche bond, a trade that priced at the end of the first quarter when issuance conditions were trickier, albeit after the ECB’s long-term refinancing operation had lifted sentiment from the depths of the previous year.It is easy to forget just how much was riding on Russia executing a great deal. In 2010, when Russia returned to the international bond markets after an absence of more than a decade, it should have walked the deal of the year award. Instead, the transaction flopped as investors balked at the way Russia bulldozed its way into the market.Russia could not afford to make the same mistake again and, luckily, it didn’t. Taking advantage of limited supply from the CEEMEA region at the time, the transaction garnered a remarkable US$24.1bn order book from more than 600 accounts as the sovereign (Baa1/BBB/BBB) proved that it had learnt its lesson. It was arguably the first emerging EMEA deal (along with a trade from Saudi Electricity that priced the same week and also generated a huge book) to highlight the liquidity theme that has dominated the region’s bond market ever since.But it was not just the overall size or level of demand that stood out. The deal was divided into five-year, 10-year and 30-year tranches, and it was the sovereign’s decision to include the long piece that paid off as it became the biggest bond issued by an emerging markets sovereign at that tenor. Remarkably, the 30-year tranche was bigger than the other two shorter-dated notes.The 5.625% US$3bn bond saw US$11.6bn of orders from 430 accounts, with US real-money managers desperate for long-duration bonds acting as the driving force.“Russia is the one major country without a 30-year bond and they finally accepted the need to change,” said Helene Williamson, head of emerging markets debt at First State Investment.While the US$2bn 3.25% 2017s and the US$2bn 4.5% 2022s were successful notes in their own right, it was clear from the outset that it was the 30-year tranche that had investors salivating.Pricing, too, was fairer than many investors had expected. “Last time they put out their bonds according to their own rules and regulations, irrespective of investor concerns. This time guidance was manageable, though not cheap,” said one fund manager.Based on initial guidance, the new-issue premium for the five-year bond was about 35bp and for the 10-year issue it was 20bp–25bp on a mid-swaps basis. Both notes were subsequently tightened by 5bp, while the 30-year tranche was tightened by 15bp from its initial level.All three tranches have performed incredibly well since they were printed, with the 2042 note trading at a bid offer of 121.124 in mid-November, compared with a reoffer price of 97.553.Twenty-two banks pitched for the transaction, including virtually every leading international firm and the top domestic houses. The government chose BNP Paribas, Citigroup (the only survivor from the 2010 deal), Deutsche Bank, Sberbank and VTB Capital.