Bond House: Deutsche Bank

IFR Review of the Year 2013
10 min read
Shankar Ramakrishnan, Philip Wright

Still performing

In uncertain and changing markets, it requires clarity of vision to take account of events, and even predict and map them. But this needs to be allied to an ability to act – anytime, anywhere – and few can combine all these facets. Deutsche Bank proved yet again in 2013 that it can offer the full global package and is IFR’s Bond House of the Year.

Deutsche Bank’s mantra is “Passion to Perform”, and its credentials throughout the IFR Awards period showed it has not yet tired of doing so, adding market share across almost all product lines in spite of already occupying a top-tier position. Complacency, it appears, is not a word that features in the bank’s dictionary.

It raised more debt for more issuers from more countries than ever before, acting for clients in some 70 jurisdictions across 24 currencies and hitting pockets from high-grade to high-yield and everything else in between.

“While some of our competitors concentrated on their traditional strengths, we managed to demonstrate widespread progress across the breadth of the various markets,” said Miles Millard, head of capital markets and treasury solutions.

And it was this breadth that made for a truly impressive year that saw the bank extend its reach to virtually every corner of the bond world.

“We spotted the trends and the pitfalls and were able to navigate our way through them,” said Millard.

To do this, and more importantly advise clients how to deal with whatever particular situation arises, requires commitment on a global scale, said Chris Whitman, head of global risk syndicate. “We are deeply embedded in the local markets; we are not just ‘suitcase bankers’,” he said, adding that Deutsche had not risked its franchise by the “juniorisation” of staff.

Euro strength

The euro market has always been a traditional area of strength for the bank, and so it remained throughout 2013.

In the corporate arena, Deutsche was at the forefront of trends such as unrated mid-cap issuers coming to market and longer-dated issuance, as exemplified by Hera’s 15-year, a deal that played to investor appetite for yield by having both a long tenor and coming from a peripheral issuer.

A myriad Deutsche-led established European credits provided regular fare throughout the year, although it also acted for a number of US and Asian issuers drawn to the currency by competitive funding rates as the US dollar/euro basis swap moved as a result of Fed tapering fears and concerns regarding the country’s debt ceiling.

This dollar nervousness particularly affected markets that historically rely heavily on the currency, such as high-yield and emerging markets. But here, too, Deutsche provided leadership and proved the doubters wrong, many having predicted an enforced early close to the funding year for such issuers, only to see the market bounce back.

Hakan Wohlin, the bank’s head of global debt origination, described the events as “the rise, fall and rise of EM”, and its leadership in both that sector and high-yield was notable, leading to Deutsche to win IFR’s Global and European High-Yield and EMEA Emerging Markets Awards.

Back in euros, another major theme was the growth of the corporate hybrid market, as investors searched for yield and issuers looked to lock in tight funding costs. Deutsche was again highly active, lead-managing notable deals, many of which also included US dollar or sterling components, further demonstrating its cross-currency prowess.

But while the product became more mainstream, there was still room for differentiation, one example being KPN’s multi-tranche deal, where the amount raised allowed it to limit the size of a rights issue.

Another was DONG’s return, which was accompanied by a buyback of existing paper that had lost its S&P equity credit – liability management once again being an important facet of Deutsche’s franchise, and not just in corporates but around the world and across currencies in sovereigns (for example, Greece, Mexico and Uruguay) and financials (RBS, Intesa Sanpaolo, American Express, Capital One) as well.

The combination of Deutsche’s abilities was perhaps nowhere better demonstrated than in the €2.1bn-equivalent financing for America Movil, the first corporate hybrid out of Latin America in euros and sterling, on which it acted as sole structuring agent.

In the financials sector, meanwhile, as well as being a key partner in senior unsecured and covered bond fundraising, where it occupied a top three position in the underwriting league tables, Deutsche was at the forefront of the new wave of capital that began to emerge.

But this was no lucky break.

“This may have been the year we saw greater regulatory clarity but it’s something we’ve been thinking about for three years,” said Wohlin. “Now we’ve gone from walking to a full sprint.”

Issues such as Societe Generale’s Additional Tier 1, the first with temporary writedown, Barclays’ equity conversion AT1, marketed heavily in the US, Credit Agricole’s Tier 2, which received equity treatment from S&P, and Swiss Re’s innovative contingent capital catastrophe bond, a neat solution to a particular requirement, all showcased Deutsche’s capabilities in the second half the year.

And right at the start of 2013, it arranged the sale of Bank of Ireland CoCos held by the Irish government, which sent out a strong message and helped open the wider peripheral bank market.

“On Apple, the fact that we had a long-standing transaction banking relationship was an important differentiator and one that a few years ago we absolutely would not have been able to connect internally on”

In fact, the foundations had already been laid, in December 2012, when Deutsche sole-led a 10-year Tier 2 bullet for the issuer, the first capital deal out of the country since 2008.

In addition, it was active in the Asian retail Reg S market, as well as for Asian issuers themselves (notably ICBC on its Basel III-compliant Tier 2), while one fact that escaped some was that the first ever compliant AT1 globally was actually in Australian dollars and came from Westpac in February. Deutsche was joint lead.

In the SSA sector, it has always been an integral player, its credentials described by Bill Northfield, head of SSA origination, as comprising “the five Cs”.

These, he said, were: currencies – where Deutsche displayed its ability to execute in a number of different markets; curve – with maturities from 18 months to 55 years; coupons – fixed, floating and index-linked; complexity – as exemplified by Greece’s debt exchange; and clients – where 13 were added to take the SSA tally up to around the 50 mark.

Organic US

It is in the US market that European underwriters have perennially struggled to gain a foothold. While some have decided on the acquisition approach to address this, Deutsche has instead grown its business organically.

Yankee issuance is an area where the Europeans should not have that much difficulty in winning, although some appear to. Deutsche does not, as notable deals from Standard Chartered, ING, RBS and BPCE, among others, bear witness to.

But it is the domestic market where the battle lines are drawn and even here Deutsche grew its market share in an intensely competitive high-grade market thanks to a sharp focus on its US business and a truly co-ordinated effort.

“The headwinds DB faced in the US investment-grade market were numerous,” said Marc Fratepietro, co-head of coverage, capital marketsandtreasury solutions, North America. “The bank’s well-publicised efforts to reduce balance sheet and bolster capital required it to do more with less. We needed to be especially strategic on where to deploy balance sheet and coverage resources.”

The big boost to its market share came through Apple’s US$17bn six-part issue, which was a huge mandate for the bank and testament to the issuers’ faith in Deutsche’s deal distribution and execution capabilities.

The mandate was initially just with Goldman Sachs but Deutsche was brought in just days before the transaction was launched into bookbuilding.

“On Apple, the fact that we had a long-standing transaction banking relationship was an important differentiator and one that a few years ago we absolutely would not have been able to connect internally on,” said Erich Mauff, head of capital markets and treasury solutions, North America.

Deutsche’s presence on the Apple mandate whose proceeds were used to repurchase shares also reflected the bank’s ability to stay on top of a key theme in 2013. Besides Apple, Deutsche also lead-managed seven other share repurchase-related deals – from Merck, EMC, Home Depot, Halliburton, Viacom and Northrop Grumman.

As well as Yankee transactions, the bank also made headway with US regional banks in the preferred market, bookrunning deals for BB&T, Fifth Third, Bank of New York Mellon and Zions Bancorporation.

Of course all this activity across the globe was executed against a backdrop that was challenging – which could itself warrant a sixth C in Northfield’s list.

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