North America Financial Bond House: Morgan Stanley

IFR Awards 2020
5 min read
William Hoffman

The tough get going
For skillfully leading diversified financials and regional banks through a difficult year that required speed to access at times and patience at other times – and a cool head at all times – Morgan Stanley is IFR’s North America Financial Bond House.

North America Financial Bond House

Morgan Stanley did not climb to the top of the financial league tables in 2020 but demonstrated several times throughout the year that its advice directly led to meaningfully better performance for its clients over its competitors.

Perhaps nowhere is that more evident than in its guidance for General Electric.

The industrial conglomerate priced a US$6bn four-part trade in April out of the parent and a month later was looking for another US$6bn out of financial unit GE Capital Funding.

But the second time around Morgan Stanley was not involved as an active bookrunner and the deal fell apart in one of the worst pricings of the year.

Not only did GE Capital have to settle for US$4.5bn with an order book well under two times covered but spreads never budged from initial price thoughts, landing a 10-year at 370bp over Treasuries – 80bp wide to where the parent was able to price a similar 10-year a month earlier.

Recognising GE Capital’s need for an additional US$1.5bn in funding, Morgan Stanley as sole bookrunner on a deal in June captured a reverse inquiry on a new tap of GE’s 4.40% 2030s, this time pricing 80bp tighter at 290bp over.

“This deal encapsulates the year for us,” said Scott Ashby, co-head of fixed income capital markets, Americas. “We sourced a reverse, solved a problem for an issuer we’ve had a relationship with for over 20 years, helped the buyside, brokered a trade that worked for both sides and were able to deliver on behalf of GE and the investor community.”

In another example, Morgan Stanley helped lead Banco Santander Mexico back to the market in April as the first Latin American non-sovereign issuer to access US dollars following the onset of the Covid-19 crisis.

There was a lot of uncertainty that the bank could effectively access the market and Morgan Stanley fought to get Santander Mexico to market in the belief that they could execute at tighter spreads than many other bankers thought possible, said Paul Spivack, global head of investment-grade fixed income syndicate and co-head of fixed income capital markets, Americas.

Santander Mexico printed a US$1.75bn five-year at 5.375%, in from initial price thoughts of the 6% area on US$5.8bn demand.

“Are we going to do 15 of those deals? No, but when no one knows it can get done, we’re the ones that step in,” Spivack said.

There are niche parts of the market where Morgan Stanley does lead the league tables. It was the top bank for US$25 par and US$1,000 par preferreds, it was the top bookrunner for US regional bank issuance and perhaps most surprisingly No 1 for Yankee banks.

European bank issuers have short windows to access the US dollar market and most decided to sit out the March window during the immediate fallout from the pandemic.

When the August window opened Morgan Stanley pushed ahead despite rumblings that there had been too much supply already and that investors were ready for a break, said Teddy Hodgson, head of US fixed income syndicate.

Lloyds, Standard Chartered, Nordea, Swedbank, UniCredit and NatWest consistently turned to Morgan Stanley’s expertise throughout the year, particularly for subordinated paper that proved to be such a crucial portion of the banking sector’s funding strategy.

“Preferreds have been the life blood of how people raised capital if you’re a bank or insurance company in 2020 and we’re at the forefront,” Ashby said.

It was also a year where Morgan Stanley stepped up as a leader in the ESG space with its own commitment to net-zero financing emissions by 2050 (“financing emissions” refers to greenhouse gases emitted by entities that receive financial services, loans or investments from Morgan Stanley).

Not only did Morgan Stanley debut its first social bond to help affordable housing projects but it also led a number of headline-grabbing green bonds including the largest-ever private placement deal, a US$3bn green bond from Vanguard.

Additionally, the bank expanded its partnerships with diversity and inclusion banks. Starting with its US$4.5bn senior note from November, Morgan Stanley is including five D&I firms as bookrunners (two as co-managers, two as passive joint lead managers and one as an active lead manager) in all its trips to the primary bond market.

“This is an opportunity to showcase their distribution to us but also reward their salespeople with product,” Ashby said. “It’s a good part of the social piece in our overall ESG strategy.”

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