Showing the light
For its work on guiding US banks through the collapse of Silicon Valley Bank and other regional lenders and leading some of the most important financial bond transactions of 2023, Morgan Stanley is IFR’s North America Financial Bond House of the Year.
The US banking industry faced one of its most volatile years in 2023 – competing with private credit, navigating the distress among regional banks and experiencing the increased scrutiny of financial regulators. Throughout all this upheaval, Morgan Stanley was there for its clients.
In most years, bank issuance is a sleepy business. As some of the most sophisticated, seasoned and highly rated borrowers, many have little trouble taking out billions of US dollars from the US investment-grade market.
But that wasn’t the case in 2023, especially in March when the dramatic failures of Silicon Valley Bank, Signature Bank and other regional lenders caused by rapid deposit outflows inspired worries that broader contagion could endanger the entire financial system and helped drag down Credit Suisse.
Though the rapid intervention of US regulators prevented a deeper banking crisis, the subsequent widening of credit spreads meant banks were unsure when they could return to the bond market.
Faced with this difficult environment, Morgan Stanley nonetheless guided many US regional banks in their first issues since March. Each of these transactions proved pivotal in reviving confidence in the sector.
“The importance of those individual transactions going well – it wasn't just important for the issuer, it was important for the entire sector,” said Howard Brocklehurst, co-head of financial institutions fixed-income capital markets.
Truist, Huntington and Capital One were some of the lenders that turned to the US investment bank’s expertise and experience, with their bond offerings drawing a rapturous response from investors.
One particular Morgan Stanley-led trade drew the market’s attention. Ohio-based Fifth Third collected US$12bn of peak demand for a US$1.25bn senior holdco bond on July 24. Its success was closely watched because Fifth Third’s offering was the first for US lenders with assets of US$100bn–$250bn, sharing the same size as the banks that failed in 2023.
For many of the US regional lenders, this demonstration of market access was key, as the introduction of long-term debt requirements will require increased issuance of loss-absorbing senior bonds from the industry.
“If you look at all of these deals right after SVB, we were front and centre in almost every single one,” said Teddy Hodgson, global co-head of investment-grade syndicate.
With this series of resounding successes, it’s no wonder Morgan Stanley topped LSEG’s league table for North America FIG issuance, capturing a market share of 12.5% in 2023.
Beyond the regional banks, Morgan Stanley also led some of the most eye-catching financial transactions of the year. It played a part in the inaugural offering for Puerto Rican lender Banco Popular in the investment-grade market and RenaissanceRe’s US$750m Tier 3 note which won IFR’s North America Financial Bond of the Year.
Morgan Stanley also helped European lenders regain access to the crucial market for deeply subordinated bank capital. It served as a joint bookrunner for BBVA’s US$1bn Yankee AT1 trade in September, one of the first AT1 issues from European lenders after the wipeout of Credit Suisse’s AT1 bondholders in March.
Morgan Stanley was also the only outside lead on MUFG’s US dollar AT1 offering, a transaction that showed the strength of the bank’s advisory chops and its understanding of global financial markets.
The first offshore AT1 issued by a Japanese bank, the US$750m trade required underwriters to explain the intricacies of a regulatory regime that was unfamiliar to many US and European investors.
Critically, there was a view that the Japanese government was willing to support a bank well before it was on the brink of failure, creating the perception that the risk of a costly bail-in was more limited than in other countries. At the same time, none of these expectations were made explicit by regulators.
The marketing efforts paid dividends. MUFG drew a peak book of US$11.5bn, a level of demand rarely seen for a Japanese subordinated instrument.
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