June 23 will remain inexorably etched in the minds of all financial professionals on both sides of the Atlantic as the day the UK voted to leave the EU.
But while shocked, debt bankers at Citigroup did not sit on their hands. They got on the phone to clients to reassure them and also to tell them to be prepared in case investors were receptive to new deals.
They were – and far quicker than many expected. In the week following the vote, on June 28, Citigroup helped bring Molson Coors to the US dollar and Canadian dollar markets, as the brewer raised around US$6bn-equivalent.
It was the first deal in the US primary market after the Brexit vote. The transaction garnered some US$32bn in orders and was priced with little or no new-issue concession.
The following day, Citigroup helped Molson raise funds in euros, with an €800m offering, opening that market in the process.
On June 30, the bank brought US wine and spirits company Brown-Forman to the sterling market as part of a dual-currency offering, reopening that market too (along with a simultaneous trade from British American Tobacco).
Still Citigroup was not done. On the same day, the bank was a lead on a US$1bn five-year trade for Lloyds Banking Group, in the first transaction by a UK borrower since the vote and reopening the US dollar market for banks.
The deal was priced at 210bp over Treasuries, around 40bp wider than it would have had the Brexit vote gone the other way, said a banker on the deal. But the bonds tightened by 20bp in the aftermarket.
There were other Citigroup firsts following the Brexit vote, as other product areas woke up to the opportunities. In the Additional Tier 1 market, a US$2.625bn deal from RBS came in August and in high-yield, the first PIK toggle deals followed in September, for Ardagh and Schaeffler, whose €3.59bn-equivalent trade, was the biggest such deal since the financial crisis.
“It’s not easy to be first to go on screens after a major shock in markets. The strength of our sales and trading speaks volumes,” said Peter Charles, head of debt syndicate, EMEA. “We’ve not scaled back.”
Citigroup has made significant progress over the past 12 months, climbing league tables and outpacing all of its rivals.
“This year we took a major leap forward with a substantial 100bp market share gain in global bond issuance – the highest rise among all our competitors around the world,” said Tyler Dickson, head of global capital markets origination.
Citigroup is in the top three of every geographic area – Americas, EMEA and Asia-Pacific. It is also in the top three across almost every product – emerging markets, high-yield, corporates and FIG.
“Citi’s story is one of reinvestment, redirection and growth,” said Phil Drury, head of capital markets, EMEA.
A rebuilding process was necessary. In the years after the financial crisis struck in 2007–08, the bank went through plenty of turmoil in its fixed-income business. It was seen as a complex organisation, where bankers were often at odds with each other over resources and, ultimately, the share of the bonus pool.
Now, bonus pools are run on a non-silo basis and with capital markets heads at regional level, the bank is able to provide a more complete package to clients. That, in turn, has led to a more joined up firm.
“We’ve done significantly better in connecting globally,” said Drury, whose arrival back in London in 2015 after a 15-year spell in New York has sped up the process.
Nowhere did Citigroup demonstrate its acumen more than in the US investment-grade market, which was on course for a sixth consecutive record year of issuance.
But deal execution was far from straightforward. From money market reforms to the slump in crude oil prices and the shock vote for Donald Trump – not to mention the rates hike saga – there was headline risk aplenty.
Issuers had to be more careful about timing; they had to be opportunistic and pick their spots carefully.
That put bookrunners under pressure to come up with strategies to help their clients wade through often challenging conditions.
Citigroup thrived in this difficult climate, repeatedly proving its ability to deliver results for clients ranging from the most seasoned issuers to the relatively inexperienced.
“We were able to break new ground with innovative structures, navigating all-time record transaction sizes across sectors, piloting through front-end changes in market structure and championing unique execution strategies,” said Peter Aherne, head of North America investment-grade capital markets.
Citigroup repeatedly excelled in landmark acquisition financings, such as Dell’s US$20bn bond, Southern Company’s US$8.5bn seven-part trade and Aetna’s US$13bn eight-parter. This was despite acting as an adviser on only two of the biggest M&A deals of 2016.
Indeed, Citigroup was the only bank outside the advisers selected by Air Liquide and Danone to act as active bookrunner on both their US dollar and euro offerings.
Citigroup also stood out in the financials sector in the US dollar market, not least with its own US$2bn seven-year non-call six floating-rate note.
It was the first TLAC-eligible bond issue by a US bank in floating format to include a call option.
The option is aimed at limiting the cost of compliance with expected Total Loss Absorbing Capacity regulations.
Another strength is emerging markets. Citigroup was the only bank to be in the top two in every developing region.
“It would have been an easy decision to cut the team when EM was challenged. But we bet on an EM revival and it’s come through,” said William Weaver, head of debt capital markets, EMEA.
Perhaps Citigroup’s biggest coup was to be awarded a global coordinator role on Saudi Arabia’s record US$17.5bn transaction. In 2004, the bank controversially sold its 20% stake in Samba Financial Group, which signalled an end to its presence in a country it had operated in for nearly 50 years.
It has taken plenty of persistence and lobbying for Citigroup to get back in the Saudi authorities’ good books.
It is a good job Citigroup has. No bank with pretensions to be a global player can afford to miss out on the financing opportunities that will arise out of Saudi Arabia over the next decade.
Naturally, as with every bank, there are gaps in Citigroup’s global bonds business, but some of these are unavoidable. It knows it will never top the league table in covered bonds, given the importance of reciprocity in that market. Or that in SSA there are some areas, such as the German and French regions, where it does not make sense to invest in coverage.
But when management spots a weakness, it tries to respond quickly. In the EMEA real estate market, for example, Citigroup did no deals in 2015. This year it has worked on six.
“We recognised where we weren’t strong and dedicated investment,” said Weaver. “We filled a gap.”
One deal was a €500m perpetual non-call 6.25-year issue for Aroundtown Property. The company eschewed a roadshow, a formality that is typically undertaken by borrowers for debut hybrid trades, and held a global call instead.
While the strategy was criticised by many, the deal got done.
“Putting a new name into the hybrid space without a roadshow showed a good reading of the market,” said Weaver. “They’d already done a fair amount of marketing around their senior deal earlier in the year, so we knew there would be solid support.”
Despite its successes, Citigroup’s management has no intention of losing the momentum built into its bonds franchise. “It’s in our DNA,” said Dickson, “and we’ve never been more committed to the business.”
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