The Banker's Investment Banking Awards, 2014

               

The global economy appears to have stabilised,but the shake-up in investment banking continues apace. Data from research company Coalition showed overall revenues for investment banks were down 5% year-on-year in the first half of 2014.

Advisory and capital markets work is growing – up 11% in the first half of the year – as confidence returns to corporate boardrooms. But this is still the smallest component of revenues. Equity trading revenues fell 4%, and fixed income, commodities and currencies (FICC) – by far the largest slice of revenues at almost half the total – slumped by 13%. The growing regulatory focus on leverage ratios makes FICC trading a difficult business to maintain. 

       

• Introduction to the Investment Banking Awards 2014
• Most innovative investment bank from Africa winner Standard Bank
• Most innovative investment bank for bonds winner Deutsche Bank
• Most innovative investment bank from Latin America winner Itaú BBA
• Most innovative investment bank of the year winner Credit Suisse    

In this context, the era when every bank had aspirations to be a top-tier player in every product and sector is well and truly over. Even those banks that steered a relatively calm path through the crisis are increasingly focusing their offering in products and sectors where they feel they have a competitive advantage. This year’s global winner, Credit Suisse, was one of the early adopters of such a strategy. Excessive competition had eroded margins and fuelled the kind of wayward conduct that is now costing investment banks billions of dollars in fines. It can only be hoped that the exit of marginal players in each segment reduces the risk of mispricing.

The Banker has sought to reflect those changes with a shake-up in our awards this year. Some trading categories where entrant numbers were falling have been replaced by sectoral coverage categories. That change mirrors the pressure for investment banks to home in on a client-centred approach as proprietary trading comes under regulatory pressure. The effect of banks specialising their offerings can also be felt in the greater range of winners this year. 

Most innovative investment bank

Winner: Credit Suisse

Most Innovative Investment Bank from western Europe

Winner: Credit Suisse

Highly commended: Deutsche Bank

Credit Suisse, like other big investment banks,is transforming itself to meet the changing demands of today’s markets. Six years on from the 2008 global financial crisis, banks are still trying to adjust to new regulations and the needs of clients. That process is likely to continue for a while.

Credit Suisse was among the first of its peers to increase its capital base, partly because of the so-called ‘Swiss finish’ of higher requirements than international norms. That head start might have given it a slight advantage in the short term, but with new regulations cropping up regularly, banks feel as if they have to adjust their businesses almost as soon as they have finished responding to the previous set of rule changes.

Perhaps the latest and most important issue to deal with is the leverage ratio. Frustratingly for investment banks, there is still plenty of uncertainty about what their final targets will be and which types of capital will count towards the ratio. For Swiss banks, the inclusion or otherwise of bail-in bonds will make a big difference.

Credit Suisse and its competitors will face plenty of challenges deciding which businesses to allocate their capital towards in response. The leverage ratio will be all the more difficult to stomach in that it could end up penalising low-risk trading businesses the most, given that those typically have low margins and use up plenty of balance sheet.

“The leverage ratio makes even basic government bond or repo businesses a challenge to run,” says Gaël de Boissard, Credit Suisse’s co-head of investment banking. “In the past 12 months, we’ve been thinking about what will happen to these markets, what investors in them will want and how to come up with a solution that works for clients and shareholders.”

While Mr de Boissard knows there is still some way to go before the investment banking industry has fully adapted to the new landscape, he is positive about the medium- and long-term future. “People are too negative about the outlook for investment banking,” he says. “There are some products that consumers or corporates will always want. If banks have to hold more capital against these, they will pass through those costs to the customers.”

Credit Suisse has had to cut back in some areas it expanded into before the crisis. It said in July that is was exiting from the capital-intensive business of commodities trading.

Mr de Boissard says the businesses that remain crucial to Credit Suisse include mergers and acquisitions, rates and equities broking. He is also keen to bulk up in leverage finance and securitisation, two businesses in which the bank already excels. “I’d like us to expand in leveraged finance and securitisation, particularly in Europe,” he says. “There, the reduction of banks’ balance sheets will present opportunities for these markets to grow.”

Europe’s leverage finance and securitisation markets have plenty of scope to expand, given that they remain smaller than their US counterparts. Credit Suisse’s innovation was on show in both markets over the past 18 months. One highlight was being the sole bookrunner on a $500m ‘risk-sharing’ mortgage-backed security from US housing agency Freddie Mac in July last year, which was known as a structured agency credit risk (STACR) bond.

The purpose of the STACR deal was for the government-sponsored enterprise (GSE) to sell off some default risk on residential mortgages. The landmark transaction was the clearest sign since the crisis of the US government’s intention to bring private capital back into the mortgage market. “Finding a better way forward for the US housing market was something that needed to happen,” says Mr de Boissard. “Being the sole advisor on that deal was a highlight for us. It was a very important transaction, one of the first steps toward returning private capital to the US mortgage market and away from GSEs.”

Credit Suisse’s strength in the US securitisation market was exemplified by it finishing the first quarter of 2014 at the top of Thomson Reuters’ league table. In Europe, where it has been at the forefront of the revival of issuance of collateralised loan obligations, its market share is smaller. But it is growing as it seeks to move up the league tables.

In leveraged finance, Credit Suisse has maintained its position as a powerhouse in both Europe and the US. Thanks in part to its ability to make its advisory and capital markets teams work together, it has been a bookrunner on numerous high-yield bonds and leveraged loans backing acquisitions. Perhaps the most notable of these was a high-yield bond of E12bn, the biggest in history, to fund French cable company Numericable’s takeover of mobile phone group SFR. “Numericable’s bond really demonstrated the potential of the European high-yield market,” says Mr de Boissard.

If Europe’s corporate bond and securitisation markets do continue their rise – which bankers say is likely given the shrinking of bank balance sheets on the continent – then Credit Suisse will be in prime position to benefit. And while it is still recalibrating its overall business, it looks to have positioned itself well by choosing to focus on its traditional strengths and moving away from businesses that will be far less lucrative than they were prior to the crisis.

Most innovative independent investment bank

Winner: Jefferies

Highly commended: Lazard

Jefferies has come a long way in the past decade. Having being little more than an equities trader, the New York-based institution is now a full-scale investment bank, with large advisory, primary capital markets and fixed income trading operations.

Rich Handler, Jefferies’ chief executive since 2001, puts its success – it generated record earnings in the first nine months of this year while annual revenues are set to pass $3bn for the first time in 2014 – down to the nimbleness that comes with not being a bank holding company or subject to the mass of new regulations affecting bigger rivals. “We’re still fairly lean and entrepreneurial and we are operating in a manner consistent with our historical client-focused business model,” he says. “A lot of the banks are being forced to change their business models because of the new regulatory regime. When you change your model, it can be difficult and cumbersome, and it is rarely easy.”

Innovation has played no small part in Jefferies building its market share. Two recent standout examples were a $750m pre-initial public offering (IPO) convertible bond for American Energy-Utica (AEU) and the issuance of two collateralised loan obligations (CLOs) backed by revolvers, or undrawn loans companies use for liquidity purposes.

The deal for AEU, an oil and gas producer established in October 2013, was issued in February this year and was the largest ever pre-IPO convertible bond in the US. It was unique in that it had a two-pronged conversion structure – investors’ bonds will convert into shares at the time of an IPO at the lesser of a discount to the IPO price, initially set at 20%, or a fixed IPO valuation threshold, set at $5bn. The transaction gave AEU cheaper funding than a typical pre-IPO loan would have (the initial coupon was just 3.5%), but also offered investors protection should the IPO price below expectations and plenty of upside if it prices significantly higher.

Jefferies believes the revolver CLOs, meanwhile, allow investment banks without large balance sheets to fund their portfolios of revolvers more cheaply than before. The advantage is that they allow banks to release what capital they hold in reserve (in case the revolvers are drawn) for new business. And if the revolvers are drawn by the borrowers, they are funded at the CLO’s cost of capital rather than the loan arranger’s higher cost of capital.

Since the CLOs themselves are funded independently through debt sold to capital markets investors (and some equity from the loan arranger), they present a new way for the capital markets to lend to companies, albeit indirectly. “The regulators want banks to become smaller and pose less systemic risk,” says Mr Handler. “If we can pioneer capital markets solutions that aren’t dependent on large commitments from banks, it should be good for the entire system.”

Most innovative investment bank from central and eastern Europe

Winner: Sberbank CIB

Russia’s largest bank, Sberbank, has significantly bolstered its investment banking capabilities over the past few years. The acquisition of Russian investment company Troika Dialog, finalised in January 2012, allowed it to create a new combined business, Sberbank Corporate and Investment Banking Business (Sberbank CIB).

During the judging period, Sberbank CIB was involved in several innovations, including the first ever equity offering of foreign securities in Russia on the Moscow Exchange.

The new product was jointly developed by Sberbank CIB, the Moscow exchange, the Russian federal financial markets service and the Russian central bank, and was first used to list foreign shares of mining company Polymetal International.

Sberbank CIB was also involved in the initial public offering of Tinkoff Credit Systems, the first consumer bank to float in Russia.

The three-way joint venture in the sale of building company Titan Group’s Omsk Polypropylene Plant, a manufacturer and supplier of polypropylene, to the existing joint venture existing between energy companies Sibur and Gazprom Neft, was another “landmark transaction”, according to Alexander Bazarov, the acting head of Sberbank CIB.

The deal involved a “complex dual-law structuring with a number of intertwined agreements” serving to preserve a pure 50/50 joint-venture structure and “mitigate any deadlocks that could hamper normal business operations”, adds Mr Bazarov.

“The binding documents were specifically aligned with operational agreements as these were strategic to all parties,” he says. “The deal had significant influence on the Russian petrochemical market and the Omsk region’s development, further providing momentum for the industrial sector.”

Sberbank CIB also worked on an innovative deal in the structured finance market, with the first consumer loans securitisation deal in the local debt market, sold by domestic lender Home Credit and Finance Bank (HCFB) in November 2013. 

“The unique transaction structure, based on the co-operation of two special purpose vehicles, enabled the securitisation of consumer loans within the current legal framework,” says Mr Bazarov.

The deal was structured to guarantee the return of investors’ money, even in the hypothetical event of a default of HCFB.

“Despite the unique structure of the deal and a significant supply of competing investment-grade issues, Sberbank CIB successfully placed the bonds and fixed the final rate between [the issuer’s] yield curve and the yield curve of state-owned banks,” says Mr Bazarov.

Sberbank CIB also ventured into other markets, with its Ä500m seven-year Eurobond transaction for Slovak natural gas distributor SPP-Distribúcia. The transaction was a debut bond for the issuer and it represented Sberbank CIB’s first debt capital markets transaction in central and eastern Europe, excluding Russia, according to Mr Bazarov.

He adds that for the next 12 months he expects volumes to “clearly depend on the economic and geopolitical situation, although we believe that Sberbank CIB is well diversified across lending, capital markets and investment banking activities to manage the cycle”.

Most innovative investment bank from North America

Winner: Goldman Sachs

Highly commended: Bank of America Merrill Lynch

Life for Wall Street’s investment banks has been tough since the global financial crisis. Fees and revenues remain far below their 2007 peak, while profitability ratios have dropped substantially.

But some institutions have managed to stand out for their resilience. Goldman Sachs is one of them. The bank’s returns still lag what they once were – its return on equity last year was 11%, down from 33% in 2007. But it is once again outshining most or all of its competitors in its key businesses such as mergers and acquisitions (M&A) and equity capital markets.

Goldman prides itself on its ability to top M&A league tables and throughout much of the post-crisis period it has achieved that. It ranked first in data provider Dealogic’s global M&A tables for both 2013 and the first half of 2014.

Innovation has been crucial to its strong advisory performance. One of its highlights was being an advisor to Novartis on part of a series of multi-billion-dollar deals in April that saw the pharmaceutical group buy and sell various assets to rivals GlaxoSmithKline and Eli Lilly. The transactions exemplified the recent increase in more complex, structured M&A deals – owing to the greater pickiness of companies as to the assets they buy – which demand more creativity and flexibility from M&A houses.

Along with other big deals that Goldman has advised on, including Vodafone’s $130bn sale of its 45% stake in Verizon Wireless in September 2013 and cement maker Holcim’s $40bn takeover of Lafarge in April, they also confirmed the renewed buoyancy of the global M&A market, a trend which has been a core focus for Goldman. “There’s been a big pick-up in corporate M&A, which is driving overall investment banking activity,” says David Solomon, Goldman’s co-head of investment banking. “The corporate acquirer is back.”

The rise of M&A has also enabled Goldman to expand its debt financing activities, particularly in leveraged finance, one of its traditional strengths. It was a bookrunner in April on a E12bn high-yield bond, the biggest in history, that backed French cable company Numericable’s takeover of mobile phone group SFR. 

“We have a strong advisory franchise and when our clients are buying businesses, we are in a strong position to finance those acquisitions,” says Mr Solomon.

Goldman expects that debt capital markets issuance will continue to be high in the near future. Mr Solomon warns, however, that the outlook for the fixed-income market will change should interest rates in the US rise anytime soon, particularly so if they increase quickly. 

“Rising interest rates could have profound implications for fixed-income markets, including reduced corporate issuance, declining secondary market prices and increased volatility,” he says.

Most innovative investment bank from Latin America

Winner: Itaú BBA

Highly commended: Larrain Vial

Itaú Unibanco’s merger of its Chilean operations with locally owned Corpbanca consolidated further the Brazilian group’s Latin American presence, and provided its fast-expanding investment bank, Itaú BBA, with new corporate clients. 

Jean Marc Etlin, Itaú BBA’s head of investment banking, is particularly pleased with the deal. “[The merger with Corpbanca] is very important in supporting our mission in investment banking, which is to be seen by corporations in Latin America as the go-to bank for raising capital, for advice on debt and equity issues; and to be seen by people outside of the region as the bank that can guide them through Latin America.”

Itaú BBA has indeed made great efforts to serve corporate clients across the region. Aside from Chile and Colombia, where Corpbanca also operates, Itaú has this year established a unit in Mexico. It has also boosted its presence further afield, in Europe, where the regional division is now fully staffed. Offices in the Middle East and Asia are already at capacity. “It took us about a year-and-a-half to perfect our international footprint. We’re almost there now. And we’re seeing results,” says Mr Etlin.

He is referring in particular to the recent $9bn acquisition of the Brazilian broadband unit of Paris-based Vivendi, GVT, by Spanish telecom operator Telefonica, on which Itaú BBA advised the Madrid-based multinational. “That’s exactly the kind of deal we want to do: cross-border, a large transaction where a non-Latin American company invests into the region, and helping Latin American businesses developing abroad,” says Mr Etlin.

Itaú BBA has become a dominant force in Latin America. In the 12 months to the end of June, it worked on some of the region’s largest equity issuances - such as the $1.4bn share offer for Brazil’s telecom operator Oi, and home appliance retailer Via Verejo’s $1.2bn initial public offering - raising a total $9.2bn for clients. In fixed income, it worked on 157 deals in Brazil, the largest number in the country, and on further 19 transactions across Latin American. It also advised on 55 Latin American mergers and acquisitions worth $18.5bn.

As for the future, Mr Etlin is confident about growth prospects across Latin America. Despite sluggish economic data coming out of Brazil, the domestic market still offers great capital markets opportunities for Itaú, he says. Elsewhere in the region, stronger growth generated by the Andean countries will create new funding needs for local corporates. Other opportunities will arise through efforts to deepen equity and debt markets in Mexico too.

“As Latin American economies continue to [thrive], corporates in Colombia, Chile, Brazil and Mexico will need to raise capital; we’ll be very active in those markets,” says Mr Eltin.

Most innovative investment bank from Asia-Pacific

Winner: Maybank

Highly commended: CIMB, VPBS

Keen on tapping growing domestic and international demand for sharia-compliant products, Maybank has made Islamic finance its key growth strategy. Having now become the largest Islamic bank in Malaysia and the third largest in the world, Maybank has used its leadership role to expand in south-east Asia, China and the Middle East.

“If Malaysia wants to be a centre of anything, it should be of Islamic finance. Malaysian capital markets – conventional and sukuk – are flush with liquidity. You can raise funds in five, 10, 15 and 25 years for infrastructure projects in whatever structure you want,” says Farid Alias, president and CEO at Maybank.

 In the past 12 months, Maybank has arranged a number of inaugural sukuk structures. It managed Telekom Malaysia’s RM3bn ($922m) sukuk programme – the first to utilise broadband units as an underlying asset. It also organised the world’s debut rated perpetual subordinated sukuk – Malaysia Airport’s RM2.5bn programme.

Maybank has also ventured into innovative infrastructure and project finance deals. In the past year, it has carried out the inaugural power plant financing (minus guarantee) in Indonesia on behalf of the country’s government. This deal is also testament to the growing links between the financial markets of the two south-east Asian countries, in addition to the markets of Singapore.

“Demand for Islamic finance products in Singapore and Indonesia is picking up, and not just from Muslim clients. More than 50% of our customers in Malaysia are not Muslim,” says Mr Alias.

Maybank has also been paving the way for Malaysian ringgit Basel III-compliant transactions in sukuk and conventional formats. It has self-arranged a RM1.5bn subordinated sukuk and a RM1.6bn subordinated bond in the past 12 months. 

These deals have helped Maybank reach Basel III-compliance comfortably by Malaysian standards. “The minimum threshold set by Bank Negara is 85% to be internal ratings based-compliant, and we have gone beyond that,” says Mr Alias.

Separately to Islamic finance, Maybank is also boosting its dim sum (offshore renminbi bonds) business while it continues expanding in mainland China. The firm already has branches in Shanghai and Beijing and it is the only institution able to offer ringgit accounts in Shanghai, with the blessing of Bank Negara and the People’s Bank of China. 

“The ringgit cannot be traded outside of Malaysia. But if you want to settle a trade in ringgit and keep your ringgit offshore, you can do that in our Shanghai branch,” says Mr Alias.

By focusing on trade finance and cash management first and investment banking later, Maybank is looking to expand further in China. It recently organised its first ever dim sum bond, for hotel group Traveller’s International. It is also looking to set up more offices. “Additional branches are being considered in China. Southern China? Possibly,” says Mr Alias.

Most innovative investment bank from the Middle East

Winner: EFG Hermes

Highly commended: HSBC

In a sign of improving international investor sentiment towards Egypt, the country’s first initial public offering (IPO) since its revolution was executed by the Arabian Cement Company in May this year. Acting as joint global coordinator and bookrunner was this year’s winner of the most innovative investment bank in the Middle East award, EFG Hermes. Improvements to Egypt’s political risk environment had led to significant pent up demand for equity paper prior to the offering, which allowed EFG Hermes to build up a solid orderbook comprised mostly of institutional regional funds as well as high-net-worth individuals. 

Most significantly, this deal has encouraged other companies in the country to consider a listing. At the time of writing, there were seven new IPOs in the pipeline for Egypt for the remainder of 2014 and moving into 2015. Moreover, the stock performance since the listing has been exceptionally strong with gains of about 35%, a figure that has outperformed the Egyptian stock exchange as well as the other publicly listed cement companies in the country.

“We saw strong demand for the Arabian Cement IPO, especially on the institutional front which is particularly encouraging for Egypt’s long-term prospects,” says Ahmed El-Guindy, head of investment banking at EFG Hermes.

In December, EFG Hermes also acted as lead arranger for a rights issue on behalf of real estate developer Palm Hills Development. This issue marked the first launch of tradable rights in the history of Egypt. With an offering size of $86m, EFG Hermes contributed 35% to the total equity raised, which was more than any other participating bank. The round-one subscription ratio was 95.74%, making it one of the highest ever levels of demand on the Egyptian stock exchange. 

“Within the next six to 12 months we will see a number of other IPO deals in Egypt in line with the global trend. The Gulf Co-operation Council [countries] will also witness a strong surge in the number of IPOs and I think the ongoing IPO of [retail management company] Emaar Malls Group will open the door for a few more to come, especially with the upgrade of the United Arab Emirates and Qatar to emerging markets status,” says Mr El-Guindy. 

EFG Hermes was also responsible for the two-step auction and sale of Dubai First, a consumer financial services business, to First Gulf Bank. EFG Hermes was able to generate significant demand for Dubai First in the build up to the auction, creating greater value maximisation. The transaction process was completed over a 12-week period.

Most innovative investment bank from Africa

Winner: Standard Bank

Highly commended: Rand Merchant Bank

Standard Bank, Africa’s largest lender by assets, has refocused its business almost entirely towards sub-Saharan Africa following the global financial crisis. Its presence elsewhere in the world is now aimed at linking investors to sub-Saharan Africa, which is widely expected to be one of the fastest growing global regions in the next decade and even beyond. “The case is compelling,” says David Munro, head of corporate and investment banking at Standard Bank. “Many of the world’s biggest multinational companies see Africa as a source of growth for their businesses. It’s not just about the next three of four years. It’ll be a significant growth region for the next 20 or 30 years.”

Standard Bank’s investment banking and capital markets work over the past 18 months has been varied and testified to its ability to carry out complex and innovative transactions. In Zambia, it helped arrange a series of deals – including a $57m mezzanine facility, a $123m bridge loan and $70m rights issue – for Copperbelt Energy Corporation and its controlling shareholder, Zambia Energy Corporation, to enable them to raise capital and buy assets in Nigeria. It also led a $99m block sale of the shares of Umeme, a power distributor listed in Uganda and Kenya.

Mr Munro says that while many African countries offer opportunities for investment banks, he is particularly focused on South Africa, Nigeria, Angola, Mozambique, Kenya and Ghana. “These are our top six markets,” he says. “These are the ones which are really attracting global pools of capital and which are going to produce definitive investment banking transactions.”

Perhaps the bank’s landmark mandate this year was acting as joint global co-ordinator for the $500m initial public offering of Seplat, a Nigerian oil company, in Lagos and London. It was first Nigerian company to dual list ordinary shares in the two places. Even more significantly, it was the first pure upstream oil company from Nigeria to go public, the deal reflecting the government’s push to indigenise an industry that has long been dominated by foreign firms. “Probably our proudest recent transaction was Seplat’s initial public offering,” says Mr Munro. “It demonstrated how sub-Saharan African companies can use both local and overseas capital markets to fund their growth.”

He adds that South Africa, despite its economic slump – it only just avoided a technical recession in the second quarter of this year – remains crucial. Among Standard Bank’s recent deals that showcased the sophistication of the country’s financial markets was a R1.46bn ($138m) green bond for the City of Johannesburg, the first such deal to be listed in South Africa, in June. “We still see South Africa as our most critical market,” says Mr Munro. “While we are no longer in the boom times of the mid-2000s, there is still a lot of business to be done in the country.”

Most innovative investment bank for bonds

Winner: Deutsche Bank

Highly commended: Credit Suisse, RBS

Fixed-income businesses have been deeply affected by new regulations, and some banks have responded by cutting their activities. Deutsche Bank is not one of them, having persistently stated since the financial crisis that it wants to maintain its status as a debt capital markets powerhouse. Hakan Wohlin, the bank’s global head of debt origination, says the new regulatory environment demands as much. “The fixed-income landscape is changing with a combination of new capital rules, leverage caps, clearing – all in a low-volatility and low-rates environment – which mean it’s harder for banks to make money,” he says. “In this situation, you need scale.”

As such, Deutsche has focused on making sure its fixed-income business has a wide geographical presence. In the year to the end of June 2014, it arranged bonds in 23 different currencies and for issuers from 77 countries, which none of its rivals matched.

Crucial to its success has been its ability to come up with innovative ideas. One example was a R5bn ($492m) bond for South African state-owned freight company Transnet in late last year. Deutsche was the sole bookrunner on what was the first rand bond to be settled in dollars and sold in the international capital markets. Listed on the London Stock Exchange, it was far cheaper than a straight dollar bond – which Transnet would have had to swap back into rand – would have been.

Deutsche has also been particularly innovative in the financial institution debt markets over the past 18 months. It was one of the arrangers of French bank Société Générale’s E1bn additional Tier 1 (AT1) bond in August 2013. It was not the first AT1 – a type of hybrid bond that is meant to act as loss-absorbing capital – but it was regarded as the first that could be widely used by other borrowers. That was largely down to its temporary write-down mechanism – while investors will lose out if the bank’s common equity Tier 1 ratio falls below 5.125%, they can regain their losses if the capital base is subsequently rebuilt. “By having a temporary writedown mechanism on an additional Tier 1 bond, you make it more enticing to investors,” says Mr Wohlin. “With this structure, we managed to attract a lot of first-time AT1 buyers.”

Even more unique was a SFr175m ($192m) deal for insurer Swiss Re last October. The transaction was the first ever catastrophe bond (it will be written down in the event of big hurricane losses in the US) to count as a capital instrument, given its long 32-year maturity. “For investors, we managed to offer a unique risk profile in the instrument with an attractive yield,” says Mr Wohlin.

Most innovative investment bank for climate change and sustainability

Winner: Bank of America Merrill Lynch

Highly commended: Citi

The up-and-coming category of climate change and sustainability is one that more and more banks will try to make their own. In the past 12 months, the judges were particularly impressed by Bank of America Merrill Lynch’s (BAML’s) efforts not only to help finance some 268 megawatts of wind power and 85 megawatts of solar capacity in the US last year, but also to turn itself into a more environmentally friendly business.

BAML itself issued a $500m green bond in November 2013 – the first green bond for a commercial bank – to finance energy-efficient and renewable energy projects, including the retrofitting of more than 140,000 street lights with LED bulbs throughout Los Angeles. The new lights reduce energy use by 63.1%, considerably lowering carbon emissions.

“In green bonds we have been involved as an architect, an issuer and as an underwriter,” says Abyd Karmali, managing director climate finance at BAML. “We talk about what we have learnt in issuing our own green bond to those who want to issue a US dollar green bond. There is a lot of insight we can offer, which our green debt capital markets team can guide [prospective] issuers with.”

BAML also was one of the founding institutions of the Green Bond Principles, together with our highly commended institution Citi. The principles were first published in October 2013, and provide issuers with guidance on the key components involved in launching a credible green bond. A second version was published together with JPMorgan Chase and Crédit Agricole in January.

“It quickly gained traction – at the launch in January, we had some 13 to 14 banks lined up but now we have roughly 61 signatories, who are not just financial intermediaries but also investors and issuers,” says Mr Karmali. “It’s a collaborative process between the different parts of the bond issuance process, which is supported by an independent secretariat.”

BAML was involved with the very first green bond for the European Investment Bank in 2007 and also pioneered complex structured transactions in 2013. The companies involved in these transactions typically have long-term, contracted cash flows that enable stable predictable yield, allowing them to reinvest excess cash flows into large-scale distributed generation projects, while reducing investors’ risks of investing in renewable energy. 

“I expect [over the coming year] to highlight more innovation to attract more investors to low-carbon-market investment opportunities,” says Mr Karmali. “At the same time, we will see the development of new products. We expect that securitisations of clean energy portfolios could be a big area.”

Most innovative investment bank for equity derivatives

Winner: Citi

Highly commended: Credit Suisse, Société Générale

The global equity derivatives market has been a tough place for banks of late. Rising competition has driven spreads lower, squeezing banks’ returns. But Citi, this year’s winner, views its equity derivatives business as a core part of its future.

With spreads tight and competition rife, it believes its global platform, which few other banks can match, gives it an advantage over its rivals. It wants to bulk up further and add to its equity derivatives team of roughly 300 people.

Its strategy has paid off over the past 18 months, with revenues increasing substantially. “Our equity derivative revenues were up in 2013 by more than 50%,” says James Boyle, who became Citi’s global head of equity derivatives in July. “We’ve got plenty of room to grow further and take more market share. Equity derivatives and Delta One are our two primary areas of focus for the equity business globally.”

His hopes that this growth can continue are boosted by rising interest in equity derivative products among investors, many of which are turning to the products for the first time as they seek higher yields but in a less risky manner than if they bought straight equities. “We’re seeing more interest from real money accounts such as pension funds and sovereign wealth funds,” says Mr Boyle. “They are increasingly sophisticated with their investment strategies and less wary of complexity.

“Because yields are so low, investors are concerned about returns. Derivatives can boost returns, but with less downside than if they invested in equities directly.”

To win new business, Citi uses more than just its muscle in the form of its long global reach. It has long been one of the most innovative banks when it comes to equity derivatives, something that has been on show on plenty of occasions recently. One example is its development of the ‘Theme Machine’, which is a service that enable investors to map and quantify investment themes. 

The Theme Machine matches 3300 stocks across the world with 83 investment themes, which are then filtered by Citi’s quantitative teams to establish rankings based on valuation, growth, price and earnings momentum, quality and risk. Asset managers can measure their exposure to various themes and change their holdings accordingly.

Exemplifying the Theme Machine’s popularity, numerous tactical call investments were triggered around April this year after it highlighted strong price momentum around its IT services and cloud computing theme.

Citi has also been working extensively on corporate equity derivative products. It believes there will be more demand for these in the next few years. “Corporate equity derivatives are a core focus for us,” says Mr Boyle. “We’ve seen strong growth in this area, particularly in North America and Asia.”

Most innovative investment bank for equity-linked bonds

Winner: Credit Suisse

Highly commended: Société Générale

Equity-linked bankers have had it tough in the past two years. With interest rates in the developed world at record lows, enticing companies to issue anything other than straight bonds has been far from easy.

The past 12 months have brought some respite, thanks to the strengthening on equity markets. This has caused more firms to consider convertible bonds. “The equity-linked market has grown, albeit from a low base, in the past year,” says Frank Heitmann, Credit Suisse’s head of equity-linked markets in Europe, the Middle East and Africa. “With the recovery in share prices and equity indices, it’s become more enticing for companies to issue convertible bonds – not only can they still get low coupons, but they can also secure conversion prices well above historical highs.”

With bond rates still near all-time lows, some investors are put off by the fact that equity-linked bonds typically yield less than straight bonds. But the positive outlook for equities has prompted more of them to look at convertible bonds, something that Credit Suisse has been keen to exploit. “Investors are searching for yield,” says Mr Heitmann. “While convertible bonds pay a slightly lower yield, they offer an attractive equity kicker.”

In such an environment, innovation has been crucial. And Credit Suisse has been at the forefront of designing deals with the right structures for this environment. Perhaps its standout transaction was a E500m zero-coupon and ‘equity-neutral’ convertible bond for German healthcare group Fresenius in March. The deal helped fund the borrower’s takeover of assets from Rhön-Klinikum, which operates private hospitals. It was unique in that it allowed Fresenius to ensure its shareholders would not be diluted at the time of conversion because company bought matching call options from Credit Suisse.

This was the first time in perhaps a decade that a borrower had managed to fully hedge itself against being diluted (US issuers have partially done so in recent years). And it was cheaper for Fresenius than a straight bond would have been, even taking into account the cost of the options. “The result was effectively straight debt at all-in-cost significantly lower than a comparable high-yield bond, a first in probably 10 years,” says Mr Heitmann. “In the US, call spread overlays are a popular strategy to increase the effective premium and to reduce dilution. We took it a step further with Fresenius and hedged the conversion and dilution risk completely.”

He doubts it will be the last of its kind. “A number of other companies in Europe are looking at following suit and if the current market backdrop holds the equity-neutral convertible financing may prove to be more than a one-off,” he says.

Most innovative investment bank for foreign exchange

Winner: Deutsche Bank

Highly commended: Barclays

Foreign exchange (FX) markets generally have been living under the shadow of investigations into benchmark fixing over the past year. However, Deutsche Bank kept its focus in particularly challenging conditions. FX volumes were down and the evolving leverage ratio regime began to put pressure on long-dated cross-currency swaps.

Like many market participants, Deutsche sought to rein in balance sheet usage without depriving clients of the services they need. Despite the falling volumes in the wider market, Deutsche managed to increase business in certain key areas, especially around emerging market currencies.

The beginning of the US Federal Reserve’s tapering of its quantitative easing programme of bond purchases prompted volatility in many emerging market currencies. Deutsche used structuring techniques to cut the cost of hedging emerging market volatility using options or forwards. For a client facing a 10% negative carry cost per year to hedge using conventional means, Deutsche devised an automatic rolling collar (ARC) where the sale of one option subsidised the purchase of the option needed by the client. The usual downside to rolling short-term options – the rollover cost and uncertainty over the final all-in pricing – was eliminated by allowing the client to determine pre-set rolling conditions underwritten by Deutsche. An emerging market currency signal system was identified to help set the parameters of the collar at any given time.

The bank also devised tailor-made capped and knock-out swaps to protect Russian importers against a sharp decline in the Russian rouble. Target profit forwards were used to allow Russian exporters to keep more of the upside on their trades that hedged against any potential rise in the rouble.

Deutsche also became a leading participant in the market for offshore renminbi (CNH) cross-currency swaps, despite the absence of a large on-the-ground Chinese balance sheet enjoyed by some of its rivals. Innovations included a $1bn, five-year cross-currency swap that enabled a Chinese company acquiring a European firm to hedge against renminbi appreciation. Deutsche managed to distribute this risk in just four days thanks to a newly established network of US hedge funds wanting to take a view on the renminbi, plus a European corporate active in China.

The bank has continued its leading role in FX trading platform innovation, with the launch of its Rapid system in mid-2014. This client interface for spot FX pricing can handle 150,000 client trades per second, generating 3 million price updates per second. Rapid uses a huge range of data points including non-FX asset correlations with FX to help the bank accurately price currencies. It is also flexible enough to allow clients to receive continuous quotes, or only be alerted when Deutsche offers the most competitive rates, and to offer pricing at a range of different trade sizes automatically.

Most innovative investment bank for IPOs and equity raising

Winner: Bank of America Merrill Lynch

Highly commended: Deutsche Bank

The market for initial public offerings (IPOs) and equity raising is booming. After years of slow business, the past 12 months have seen a strong hike in the number of deals done and stock markets have scaled new highs. 

Still, the downside risk is evident and some deals are trading down or were postponed. 

“In order to be innovative and successful, you can’t just recycle old contacts but need to understand the investor base and access a wider variety of people from different jurisdictions,” says Craig Coben, co-head of global equity capital markets at Bank of America Merrill Lynch (BAML). “We are now seeing demand from sovereign wealth funds, from hybrid and special situation investors.”

The three-part transaction for Lloyds to sell its stake in wealth management company St James’s Place was one such deal that required BAML to understand the interest of potential buyers, given that the bank was the sole bookrunning agent.

Lloyds had a 56% stake in the company and over the course of three placements within eight months the deal was sold at successively higher prices. Today the shares are trading at again higher levels than the price at which the last placement was sold. 

The initial transaction was structured to have a £130m ($212.38m) cornerstone investor but all three deals were wholly underwritten at the time, not only requiring distribution powers but also balance sheet support. 

BAML was also involved in the then largest e-commerce IPO and largest Chinese technology American depositary receipt listing since 2005 for JD.com. The $2bn IPO came alongside a concurrent private placement of $1.325bn to Chinese holding company Tencent, related to the two businesses’ strategic partnership, in which BAML was financial advisor. 

In Latin America, BAML was the global coordinator on the $2.5bn follow-on for Grupo Financiero Banorte, the largest ever in Mexico, despite a volatile market backdrop.

“Some offerings literally sell themselves but we can still add real value for those offerings which are unexpected, have challenging investment cases or are simply very large as a percentage of free-float or in numbers of days’ trading,” says Mr Coben. “That’s where the distribution platform can make a real difference, by leveraging off our close institutional relationships and educating investors quickly and comprehensively.”

For the next 12 months, Mr Coben expects the market to remain busy across the globe, with a shift away from large-scale recapitalisations of financial institutions to raising growth capital for companies across the world.

Our highly commended player, Deutsche Bank, impressed with a number of European bank equity raising activities, as well as with innovative structures such as the first ever zero-coupon and zero-yield exchangeable bond offering by an eastern European corporate for Czech energy group CEZ.

Most innovative investment bank for infrastructure and project finance

Winner: Macquarie Capital

Highly commended: Citi, Société Générale

Supported by new impetus in the infrastructure and project finance market, last year Macquarie added an impressive number of large and innovative transactions to its already extensive portfolio.

The Australia-based firm advised on 69 infrastructure deals worth more than $22bn over the 12 months up to March 2014, including public-private partnerships (PPPs) and infrastructure acquisitions both in its home market and across the world.

Notably, Macquarie advised on the Port Authority of New York’s $1.2bn replacement of Goethals Bridge, the first bridge to be built by the authority since the George Washington Bridge in 1931. It also advised on the £600m ($984.2m) Mersey Gateway PPP in the UK and the Queensland government’s A$4.4bn ($3.89bn) PPP to build 75 new six-car trains, Australia’s largest rail PPP since 2006.

More recently, Macquarie advised Australia’s local government on the A$7bn sale of Queensland Motorway, one of the largest infrastructure-related deals in the country this year. Queensland Motorways manages a 70-kilometre network of tolled roads and bridges, which has developed over time into an increasingly commercially palatable concern. Ongoing privatisation efforts will attract further interest in Australia’s infrastructure, says David Roseman, Macquarie’s global head of infrastructure, utilities and renewables advisory business. 

“The sale of Queensland Motorway was one of biggest in the whole country. It showed how much [interest there is] for Australian infrastructure assets. A lot more will come to the market thanks to [future] privatisations,” he says. “The market is not quite as it was in the boom years [prior to the financial crisis] but there certainly isn’t any shortage of debt or equity for transactions. Consortia [are getting funded more easily], lenders’ pricing is coming down and tenors are getting longer.”

 The year ahead seems equally promising for Macquarie. Future opportunities may also lie in less traditional infrastructure deals in which investors are showing growing interest, according to Mr Roseman. The US’s liquefied natural gas (LNG) market is a prime example, he says, as are waste-to-energy projects and offshore wind farms. Macquarie is keen to take a growing share of these expanding markets.

“The LNG in the US has meant that a lot of LNG pipeline and import and export facilities are being constructed around the world. We’re in the process of closing a very large transaction in Freeport, Texas,” says Mr Roseman. 

“We are also seeing a lot more activity in the waste-to-energy sector in Europe where we just closed a transaction in Ireland for Covanta [the world’s largest waste-to-energy facilities operator]. And we are currently looking at two very large offshore wind transactions, one in Dublin and the Cape Cod wind farm in the US.”

Most innovative investment bank for Islamic finance

Winner: HSBC

Highly commended: Citi, Maybank

Over the past 12 months, HSBC has been at the heart of the Islamic finance industry’s impressive and ongoing growth story. Along the way, the bank has led a number of groundbreaking transactions that have pushed the industry to unprecedented heights, both in terms of complexity and geographic reach. 

In particular, HSBC was the sole structuring bank in arranging the first ever sovereign sukuk issuance outside of the Islamic world on behalf of the UK government. The £200m ($327.64m), five-year sukuk was priced flat to the UK’s existing gilts to maximise value for the taxpayer. Despite being structured along conventional lines for a sovereign issuance, the transaction points to a swiftly maturing global Islamic finance market. 

It also goes some way to positioning the UK, and London in particular, as a global hub for sharia-compliant finance. It also opens up the prospect for follow-up corporate sukuk issuances from within the UK now that a benchmark has been set by the sovereign.

“The UK government became the first country outside the Islamic world to issue sovereign sukuk, while Hong Kong became the first non-Islamic Asian country. Both issuances illustrate that sukuk is quickly evolving, breaking out of a niche and becoming a fully fledged, viable international funding instrument. Over time, this will offer more choice to companies and investors, while underpinning the growth of the market both inside and outside its core countries,” says Mohammed Dawood, global head of sukuk financing at HSBC.

HSBC was also involved in a number of other groundbreaking transactions. The bank executed the world’s first ever US dollar sukuk issuance by a telecom operator globally for Qatar’s Ooredoo. This was all the more notable for the fact that HSBC was able to apply a highly innovative sukuk structure to a truly global transaction. Moreover, the bank was also responsible for the world’s first ever Basel-III incorporated Tier 1 structured sukuk, in this case for the United Arab Emirates’ Al Hilal Bank. The structure of this deal has transformed the market and set the template for future Basel III-compliant sukuk issuances. 

Elsewhere, HSBC was responsible for the first ever Turkish sukuk issuance in the Malaysian ringgit market, on behalf of Turkish lender Turkiye Finans. This deal was also the largest Europe, Middle East and north Africa issuance in the Malaysian market. 

“Clients we have worked with have demonstrated foresight, vision and ambition, whether that’s through trailblazing sovereign issues, new issues, or testing new and innovative structures. Each theme points towards a fast-developing industry and, importantly, that a broader base of clients have faith in the sukuk framework. That’s a strong signal for the industry,” says Mr Dawood.

Most innovative investment bank for leveraged finance

Winner: Credit Suisse

Highly commended: Goldman Sachs

In a strong year for high-yielding asset classes, leveraged finance teams across institutions were again chasing records. After the high-yield bond market for European issuers reached record levels in 2013, the volumes of just shy of Ä90bn issued irrespective of currency until September 2014 have already outpaced it.

“The cornerstones were the big defining cross-border telecoms deals for Ziggo, Numericable and Wind,” says Mathew Cestar, head of leveraged finance for Europe, the Middle East and Africa at Credit Suisse. “We were at the forefront of structuring global offerings and executing them in dollars and euros, accessing a deep pool of liquidity for sponsors and corporates.”

The three transactions showed the very different needs of companies in the same sector and Credit Suisse was involved in all of them. 

The cross-border Ä2bn loan deal for the Netherlands’ Ziggo was the largest event-driven euro term loan B since 2007. Wind Telecomunicazioni, the Italian telecoms company, sold the largest euro-denominated floating rate note (FRN) offering so far in 2014, a Ä575m six-year bond, which was part of a repositioning of the company’s whole capital structure. 

“Several years ago, there wasn’t a loan product with only incurrence covenants available to European borrowers,” says Mr Cestar. “We have developed FRNs from a product for loan buyers into one targeted at interest rate-sensitive bond buyers.”

Another superlative Credit Suisse was involved in was the largest ever high-yield bond, the largest euro-denominated high-yield tranche and the largest euro covenant-lite loan, all to finance the acquisition of French telecoms company SFR by Numericable through its owner Altice. The Ä15.8bn financing featured a Ä12.05bn bond portion in euros and dollars.

Yet, deal structures did not just get bigger, the market also saw the longest ever maturity for a high-yield bond in the form of Unitymedia’s 15-year bond sold in November 2013.

The Swiss bank underlined its innovative strength with unconventional deal structures, such as the bond by food business R&R Ice Cream, which allows for unlimited dividends to its shareholders subject to a limitation on senior secured debt. The transaction also included the first ever Australian dollar high-yield tranche.

Highly commended Goldman Sachs adapted the typically senior secured FRN bonds in its transaction for French fast-food chain Quick and sold the first unsecured FRN since 2007. The US bank was also innovative in bringing insurers, a new sector, to the European high-yield bond market. Goldman was also bookrunner on the first all-European covenant-lite loan, a loan without maintenance covenants, since 2007. The deal for French veterinary drug producer Ceva Santé Animale opened up a market in Europe, which borrowers previously were only able to access thanks to US investors in dollars. 

Most innovative investment bank for mergers and acquisitions

Winner: UBS

Highly commended: Lazard

Mergers and acquisitions (M&A) is a high-profile business in the investment banking world, and this was reflected in the exceptionally high number of entries for this year’s award. The judges were particularly impressed by UBS and its client-focused approach, which resulted in the introduction of a number of innovative structures.

“We are focused on strong, trust-based relationships and deals where we have genuine angles that can unlock value for our clients, rather than the mass-market volume deals that are balance sheet based and where clients get limited to no value from their advisors,” says Piero Novelli, head of global M&A at UBS. “Our deals in the past 12 months show that our strategy works.”

UBS was involved in the $7.6bn acquisition of healthcare corporation Health Management Associates (HMA) by US medical provider Community Health Systems as advisor to the board of directors of HMA. In this unconventional transaction, UBS worked with investment management firm Glenview Capital Management, a shareholder in HMA, to replace the company’s board of directors before the sale of the company went through.

The deal represents the largest public company to have had its entire board replaced through a consent solicitation in connection with a takeover.

Another notable M&A transaction involving UBS was the $130bn takeover of telecom giant Vodafone’s 45% stake in Verizon Wireless by communications and technology firm Verizon Communications. The deal was the third largest M&A transaction in history and the largest since the financial crisis, and included the largest ever debt acquisition financing of $61bn. The agreement was secured by a record $10bn break fee and, for Vodafone, created the second highest shareholder returns of all time, through some $84bn of cash dividends and Verizon shares.

The consideration comprised of a mix of cash, Verizon common equity, Verizon loan notes, Verizon’s 23.1% stake in Vodafone Italy as well as the assumption of Vodafone’s liabilities related to Verizon.

The partial sale of Chong Hing Bank to conglomerate Yue Xiu Enterprises, on which UBS was an advisor, represented an unprecedented structure, allowing a buyer in Hong Kong for the first time to grow its stake from 0% to above 50%. It enabled Yue Xiu, which made the offer, to obtain statutory control and maintain the target listing, while providing the selling shareholders of Chong Hing Bank with the opportunity to sell the majority of their shares at the offer price and with flexibility to retain a stake in a listed vehicle.

Lazard, our highly commended investment bank for M&A, impressed with its interconditional three-part transaction between pharma giants GlaxoSmithKline and Novartis. The deal included the creation of a consumer healthcare joint venture, as well as the swap of Novartis’s vaccines business for up to $7.1bn and GSK’s marketed oncology portfolio for up to $16bn.

Most innovative investment bank for private placements

Winner: Barclays

Highly commended: Citi

The private placement (PP) bond market has long been a large source of financing for US companies. It is far smaller than the public bond market, but it has many advantages. These include offering borrowers more flexibility, with features such as delayed drawdowns (whereby a deal is signed but the funds are transferred only at a set point in future) being common. Issuers can also structure their bonds with a greater variety of currencies and tenors than tends to be possible with public transactions.

Over the past three years, the ultra-low interest rate environment and surge in demand for corporate bonds has made the PP market even more active. “The private placement market continues to grow as more new issues come to market and existing issuers increase the frequency and size of repeat offerings,” says Angus Whelchel, co-head of private capital markets at Barclays, winner of what is the inaugural award for this category.

One particular focus for Barclays over the past year has been bringing non-US borrowers to the market. It has succeeded in large part thanks to its ability to tailor unique structures for issuers. Among its standout deals was a £300m ($490.3m) PP in June this year for UK firm Arqiva, which provides infrastructure for broadcasters and telecommunications companies. The bond was the largest ever floating rate PP issued in the UK and was sold to both US and UK investors, who provided both sterling floating naturally and in synthetic format. 

Moreover, the company met its need for a bespoke amortisation structure by getting a 15-year deal with a 12-year average life. “The Arqiva transaction met a very specific financing requirement for the company,” says Mr Whelchel. “It needed long-dated floating rate debt with a specific amortisation profile. Through an innovative and targeted marketing approach we were able to help it attract the right group of investors to complete the deal.”

Another transaction that exemplified Barclays’ innovation as a PP arranger was a $750m bond for DCC, an Irish sales, marketing, distribution and business support services group, in March. The deal contained nine tranches in dollars, euros and sterling, with tenors ranging between seven and 15 years.

It not only opened the PP market to new French and UK institutional investors, but contained delayed drawdowns of up to six months, which is unusual even for PPs. “DCC returned to the PP market in March for its largest transaction to date, taking advantage for the first time of a deferred drawdown tranche and of investor swap capabilities to enhance currency mix and overall pricing,” says Mr Whelchel. “It could have been a more complicated execution process with many different tranches in three different currencies. However, we were able to execute it quickly and efficiently for the company.”

Most innovative investment bank for restructuring

Winner: Rothschild

Highly commended: Houlihan Lokey, Blackstone

Restructurings of companies’ capital structures are by nature bespoke and allow for innovation. But the pure, debt-to-equity swap transactions have been slowing down on the back of a pick-up in the global economy and liquidity in the financial markets.

“We are managing our business in a shrinking core market of debt-for-equity swap restructurings,” says Andrew Merrett, co-head of restructuring at Rothschild. “In this market, our approach has been to broaden out to holistic solutions, involving our mergers and acquisitions [M&A], debt, equity and pension advisory colleagues. These types of deals really were the hallmark of the past 12 months under review, and [this] innately drives innovation.”

One of these holistic cases involved Rothschild’s German presence, its M&A capabilities and its restructuring technology in London to help resolve the situation between steelmakers Outokumpu and ThyssenKrupp.

“[ThyssenKrupp] had sold assets to Outokumpu and Outokumpu subsequently got into financial difficulties,” says Mr Merrett. “We helped ThyssenKrupp recoup value on its loan note consideration through an asset swap, facilitating the restructuring of Outokumpu in the process.”

Thanks to flourishing debt markets, recently carried out restructuring transactions often include high-yield bond offerings, such as the inter-conditional debt and equity raising and pension debt restructuring for UK publishing company Johnston Press, on which Rothschild acted as a financial advisor. 

Another headline-grabbing restructuring transaction involving Rothschild in the past 12 months was the voluntary Chapter 11 filing by the parent company of American Airlines, AMR Corporation, and its simultaneous merger with US Airways. 

Rothschild acted as exclusive financial advisor to AMR in the transaction, which was the largest US airline bankruptcy in history and created the world’s largest airline with combined 2013 revenues of about $40bn. Several other firms worked on the transaction but Rothschild undertook the most comprehensive role of company side advisor.

In the Middle East, Rothschild played a pioneering role in another transaction. Arcapita Bank’s restructuring was the first ever for a sharia-compliant company in the US bankruptcy court, and all securities created through the restructuring were structured to be sharia-compliant. The restructuring will gradually wind down Arcapita’s investments in more than 40 portfolio companies, and will be overseen by its former creditors.

“The market is very reminiscent of 2006 before the financial crisis,” says Mr Merrett. “In 2006 everyone knew a correction was due but not when it was going to come, and I think we are in that position now. There is systematic under-pricing of risk in the market, asset prices are high, that is a bubble and there is going to be a correction.”

Most innovative investment bank for risk management

Winner: RBS

Highly commended: Société Générale

In the world of higher capital requirements and a complex global landscape for bank capital rules, efficient balance sheet usage is a key part of helping clients to manage their risks. RBS had to adjust to straitened times much faster than many banks, and its head of sales, Scott Satriano, says the bank is now benefiting from the lessons learnt and technology developed.

Our judges were particularly impressed by the bank’s ability to bring together investment banking techniques, the latest online interfaces and a global network of investors to assist both corporate and financial institution clients with sometimes very granular daily business needs. These brought together RBS’s capabilities in securitisation, derivatives and repo financing.

“We have a structuring team, but we think of risk management more as a behaviour than as a team. It is not a case of one group of bankers having to negotiate services from other teams, the whole toolkit is always available,” says Mr Satriano.

With growing attention in its core UK market on the appropriateness of selling derivative hedging products to small and medium-sized enterprises (SMEs), RBS designed its MicroRates platform. Importing balance guarantee techniques used to manage pre-payments of loans in a securitisation pool, MicroRates automates the interest rate hedging for new SME loans, allowing relationship bankers to offer loans without breakage costs for the customer if they repay the loan early. The technique has been used for £2bn ($3.27bn) of new RBS loans, and the platform is now being rolled out to third-party lenders. 

“This technique simplifies the lending process for us and takes derivatives away from the point of loan origination for the benefit of customers – we have used straight-through processing technologies to tackle both cost and risk management challenges at the same time,” says Mr Satriano.

For clients that issued in currencies other than their own to tap new investors, RBS offered redenomination trades that allowed companies and financial institutions to remove the cross-currency swaps accompanying the debt issues. Higher bank funding costs and capital charges for counterparty risks means the all-in cost of cross-currency issuance is no longer so attractive for many deals.

“The necessity of managing down complex risk in securitisation vehicles was the mother of invention – we offered the investor and issuer better economics and an improved risk profile while realising the benefit of unwinding a cross-currency derivative position. So the trade works for everyone,” says Mr Satriano.

He anticipates the need for clients to optimise derivatives exposures will continue to be a source of innovation in the coming year. As asset managers continue their search for yield, banks have a unique role to play in bringing clients to the table, mobilising their most challenging risk positions and providing investment opportunities for those looking to monetise liquidity risk.

Most innovative investment bank for securitisation

Winner: Credit Suisse

Highly commended: Deutsche Bank, Jefferies

In a category rich in innovation, Credit Suisse won overThe Banker’s judges with its cutting-edge approach. Already in early 2013 – outside of our judging period – the Swiss bank reopened the European market for collateralised loan obligations (CLOs) for the first time since the financial crisis hit. 

During this year’s assessment period, Credit Suisse came up with yet another post-crisis CLO first: a commercial real estate CLO including property types other than multi-family. 

“In the period immediately [after the] financial crisis, the access to financing for properties that needed to be repositioned or were in need of capital improvements was severely constrained,” says Jay Kim, head of securitised products asset finance group at Credit Suisse. “One of our clients, an originator of these types of lending products, reached out to us to provide a warehouse financing vehicle to expand its capabilities. We eventually securitised its loans to provide it with a more efficient, longer duration financing product against its assets.

“We structured a commercial real estate CLO product, which was the first of its kind, and set the tone in the market on how the capital markets could finance these loan products [in the aftermath of] the financial crisis.” 

The unique floating rate commercial mortgage-backed security deal allowed for another $63m of loans to be added to the trust during the ramp-up period. 

Highly commended competitor Jefferies also pioneered a first in the CLO market, with the revolver loan CLO. Credit Suisse, however, impressed with the wider scope of its transactions.

The Swiss bank acted as sole advisor, structuring lead and sole bookrunner on the inaugural credit risk transfer transaction for Freddie Mac and developed a landmark structure, using residential mortgage-backed securities technology, for future issuances.

“Finding a better way forward for the US housing market was something that needed to happen,” says Gaël de Boissard, co-head of investment banking at Credit Suisse. “Being the sole advisor on that deal was a highlight for us. It was a very important transaction, one of the first steps towards returning private capital to the US mortgage market and moving away from government-sponsored enterprises.”

Credit Suisse also acted as a joint-lead bookrunner on an identical credit risk transfer capital markets transactions for Fannie Mae.

Elsewhere, in the asset-backed securities (ABS) market, Credit Suisse sold the first ever renewable energy solar ABS transaction. The deal for US energy services provider SolarCity underlined the bank’s innovative approach by structuring it to be backed by a portfolio of solar panels, as well as the related contractual customer payments and performance-based incentive programme payments.

“What has made our franchise unique is our commitment to being a full-service structured finance business, with a globally managed footprint, while delivering these services at the local level, with local knowledge and product expertise,” says Mr Kim.

Most innovative investment bank for structured investor products

Winner: Société Générale

Highly commended: BNP Paribas

Société Générale has long been a powerhouse in the world of structured investor products. But the current environment of ultra-low yields has not been making life easy for its bankers. And, at least in the eurozone, where the European Central Bank has just cut interest rates further, the situation does not look like it is going to ease soon. 

The key has been to focus on ways of creating yield for investors. “The regular question we get from investors is: ‘We have a lot of cash. What should we do with it and how can we generate some yield?’,” says Marc El-Asmar, global head of sales, cross-asset solutions, at Société Générale. “With the recent decrease in European interest rates, it has become more difficult to enhance investors’ yields. Clients are thus increasingly looking at going for a lower level of protection and a higher level of risk.”

One of Société Générale’s innovations has been the tailoring of its notes issuance programme, called Société Générale Issuer (SGIS), to suit the changed needs of private banks.

SGIS was set up in 2012. But in late 2013, the bank made a significant shift when it opted to sell secured notes as well as unsecured ones. The secured notes have proved popular, even with clients that were not concerned about Société Générale’s counterparty risk.

The success is down to the buyers being able to choose their collateral according to their risk constraints and yield requirements. The collateral, the value of which is constantly monitored by Société Générale and can be replaced if needed, ranges from highly rated government bonds to junk bonds, which, while riskier, can enhance an investor’s yield significantly. 

“We felt there was a need to create a flexible vehicle that would be as adequate as our normal one, while at the same time being bankruptcy-remote even in the event of a Société Générale default,” says Mr El-Asmar. “Flexibility was a key element. We’ve designed the vehicle to adapt to smaller sizes, say less than E1m, which some private banks might want.

“The collateral can be used to secure the investment or to enhance the yield. You can generate up to 150 basis points or 200 basis points of additional yield, but that’s if you’re using the lower rated collateral.”

Société Générale has also made plenty of strides with hybrid notes. Among its innovative transactions was a structured note sold in South Korea to an investor wanting a greater yield than what it could get from existing products. The bank designed a hybrid note that pays a high coupon as long as the US swap rate stays below 6% and the South Korean sovereign does not default. “The longer the situation lasts whereby credit spreads and volatility remain low, the more demand we will see for hybrids,” says Mr El-Asmar.

Most innovative investment bank for syndicated loans

Winner: HSBC

Highly commended: RBS, Ecobank

Across continents, HSBC has shown its strong presence in the syndicated loan market in the past 12 months, supported by its offices in Asia, North America, South America and Europe.

“From a geographic standpoint, we actively cover the entire globe,” says Andrew McMurdo, head of loan syndication for Europe, the Middle East and Africa at HSBC. “In all of these markets our coverage is comprehensive – whether it’s corporate loans, leveraged buyouts, acquisition financing or infrastructure, emerging markets or project and export finance – both in the large cap space and the mid cap space, which is fairly [uncommon].”

One of the most bespoke financings of the past 12 months was the $16.25bn refinancing for Australian shopping mall operator Westfield Group (WG) as part of the de-merger of its Australian and New Zealand businesses into the previously existing Westfield Retail Trust (WRT). The transaction saw WG renamed Westfield Corporation and rebranded the new WRT as an Australia and New Zealand-focused real estate investment trust called Scentre Group.

All unsecured debt within the old WG was refinanced through an initial $13bn syndicated facility and immediately taken out by syndicated and bilateral bridge loans from the two new entities. A $3.25bn syndicated revolving credit facility was also provided. 

“It was a de-merger, which involved the debt at WG being triggered, so it had to be back-stopped,” says Mr McMurdo. “Immediately after the merger it was reorganised again into bridges and a credit facility for the different entities.” The bridge loans for Westfield Corp and Scentre Group were taken out through bonds in early September.

HSBC also advised the UK’s Premier Foods for several years in the run up to creating a £1.125bn ($1.84bn) refinancing and new capital structure in May this year. The transaction included a renegotiation of the payment schedule for the company’s pension contributions through to 2019.

The depth of the loan market, and HSBC’s commitment to it, was also visible in the bank’s role as sole underwriter and advisor of French telecom business Bouygues’ bid for fellow telecoms company SFR. The Ä10.5bn takeover facility, however, ended up not being utilised as SFR was sold to cable operator Numericable instead.

“[Our willingness to initially commit to the financing on our own] raised a lot of eyebrows,” says Mr McMurdo. “The market is not bottomless but there is an enormous ability to underwrite at the moment.”

Highly commended RBS impressed with the first ever whole business securitisation of an asset-light business for UK breakdown cover company the AA, while Ecobank stood out with its $500m pre-export financing facility for oil trading business Orion Oil, which served as the pre-payment of crude oil cargos to be supplied by the National Oil Company of the Republic of Congo to Orion over a 24-month crude allocation programme. 

Most innovative investment bank for consumer and retail goods companies

Winner: Credit Suisse

Highly commended: Rothschild

Major trends in the consumer and retail goods sector in the past 18 months include a rise in the number of initial public offerings, the strong supply of debt in the leveraged finance market and the increasing complexity in the mergers and acquisitions (M&A) that have taken place. Credit Suisse, which has long been a leading bank in the consumer industry, has been at the forefront of all of these.

The rise in structured, more complex M&A deals is in large part down to companies, needing to satisfy shareholders still somewhat wary of big acquisitions in the wake of the global financial crisis and economic downturn, being pickier about which assets they buy. This has demanded greater innovation and flexibility on the part of their advisors. “M&A advisors have to be more nimble and more creative in their structuring solutions,” says Jens Welter, global co-head of Credit Suisse’s consumer and retail division. “It is in large part down to companies requiring tailored solutions for the businesses they covet and to find solutions for less strategic assets.”

One example of this shift was the multiple transactions that led to the formation of Nestlé Skin Health, a subsidiary of the huge Swiss company, in February. The creation came about after Nestlé, advised by Credit Suisse, bought the half of Galderma that it did not already own from French cosmetics group L’Oréal for E6.5bn.

Nestlé then added to Galderma, which forms the base of Nestlé Skin Health, by buying aesthetic dermatology products from Valeant, a Canadian pharmaceuticals group, for $1.6bn. It reacted quickly, approaching Valeant after its takeover of Allergan, a US pharmaceutical group. Nestlé knew that some of Allergan’s assets were suitable for Nestlé Skin Health and that Valeant would seek to sell them. “The transaction between Galderma and Valeant exemplified this trend [of more structured deals],” says Mr Welter. “It happened in quick succession to Valeant’s pursuit of Allergan.”

Credit Suisse has also been able to combine the strengths of its M&A and leverage finance teams to take part in a number of landmark high-yield bonds and leveraged loans backing acquisitions. One recent example was leading a E150m and A$152m  ($135.04m) high-yield bond for R&R, a UK ice-cream maker, that backed its takeover of Peters, an Australian rival. The Australian dollar part of the transaction was the first ever high-yield bond in the currency. “We’ve been able to marry what we’re doing in leveraged finance with our consumer and retail franchise,” says Mr Welter. “As such, we’ve carried out a vast amount of financings in the sector.”

He expects more M&A activity in the retail sector in the near future, with private equity houses in particular interested in deals. “Consumer and retail attracts disproportionate investment interest from financial investors,” he says.

Most innovative investment bank for emerging markets

Winner: Deutsche Bank

Highly commended: HSBC

Deutsche Bank was the outstanding entrant in this year’s most innovative emerging markets investment bank award. This was based on the breadth of the bank’s activities, which include a number of frontier markets, as well as the complexity of the deals and transactions that it executed. Deutsche Bank completed more mergers and acquisitions as well as debt and equity capital market deals in emerging markets than any other bank in 2013, with a total of 60 countries involved in its activities. 

The bank also extended its operations to truly frontier markets including Mongolia, Pakistan, Costa Rica and Angola. “In the past year we’ve seen our long-term planning and preparation come to fruition. Our strategy to establish a deep and broad country presence in all regions, supported by a market-leading global platform, has positioned us to respond to clients’ needs with timely, appropriate advice and execution,” says Bhupinder Singh, co-head of corporate banking and securities, Asia Pacific, at Deutsche Bank. 

Deutsche Bank has arranged nearly twice as many emerging market initial public offerings (IPOs) as its largest competitors, with a total of 50 deals completed since July 2013. Within this space, the bank also worked on some of the most complex and challenging transactions in the industry. In particular, Dubai’s Damac became the first Middle Eastern property developer to execute an international IPO in a $400m Deutsche Bank-led transaction. 

In terms of debt capital markets, Deutsche Bank has also arranged a greater variety of bonds for emerging markets than any other issuer. The bank worked on the first ever hybrid bond by a Latin American issuer, for America Movil’s $2.8bn multi-currency financing in September 2013. Deutsche Bank also acted as sole bookrunner on the first international bond issued in an African currency, a R5bn ($450m) transaction for Transnet of South Africa. Deutsche Bank was also the number one arranger of emerging market bonds for sovereigns, supranationals and agencies (SSA). This included 52 emerging market SSA deals with a value of E65bn.

On mergers and acquisitions, Deutsche Bank also enjoyed a similarly impressive year. By advising on over $30bn-worth of deals in Asia, the bank more than doubled its market share in Asia. 

“With geopolitical risk continuing in Ukraine and the Middle East, monitoring sentiment will be critical; Latin America and Africa will offer opportunities for strong stories. We will carry on developing the trading and risk management capability that underpins successful issuance from emerging market names and we will work to replicate the keen market timing which characterised our execution last year. In mergers and acquisitions, we see a sustained drive by Asian corporates to make overseas acquisitions, which Deutsche Bank has shown it can facilitate effectively,” says Mr Singh.

Most innovative investment bank for financial institutions group

Winner: Deutsche Bank

Highly commended: Citi, HSBC

Financial institutions group (FIG) investment banking has long been a hotbed for innovation and new structures as bankers seek to tailor deals for issuers and investors.

The past 18 months have been no exception, with the spate of bank capital raisings in Europe demanding innovative deals that meet the requirements of new regulations. Banks have been especially active raising hybrid bonds that count as additional Tier 1 (AT1) capital – loss-absorbing capital that is written down or converts into equity if the issuer breaches a certain trigger. “Europe has been very active,” says Tadgh Flood, co-head of FIG banking at Deutsche Bank along with Richard Gibb. “As we approach the comprehensive assessment [of eurozone banks, which the European Central Bank is undertaking prior to assuming more supervisory responsibilities later this year], many financial institutions have raised capital and put buffers in place.”

Deutsche has been at the forefront of the emergence of AT1 as an asset class. In August 2013, it was a bookrunner on an AT1 note for Société Générale that set the standard for future issuance of such deals. While not the first AT1 transaction in Europe, it was the first to have a temporary write-down mechanism – while investors will lose out if the bank’s common equity Tier 1 ratio falls below 5.125%, they can regain their losses if the capital base is subsequently rebuilt. This, said bankers, was crucial to enticing investors who had until that point been wary AT1s for fear of being written down and having no chance to regain their losses.

In the insurance sector, Deutsche led a highly innovative SFr175m ($192m) deal for insurer Swiss Re last October. The transaction was the first ever catastrophe bond (it will be written down in the event of big hurricane losses in the US) to count as a capital instrument, given its long 32-year maturity.

Deutsche has also shown its strength in other regions. In July last year it was sole financial advisor to Thailand’s Bank of Ayudhya when Bank of Tokyo-Mitsubishi UFJ announced a $5.7bn takeover of it. The acquisition was the largest ever in the Thai banking sector.

In the US, Deutsche has been closely involved in a pick-up in FIG mergers and acquisitions (M&A) activity. A particular highlight was being an advisor to Madison Dearborn Partners, a private equity group, on its $6.25bn sale in April this year of asset manager Nuveen Investments to TIAA-CREF.

Mr Gibb is confident that the US banking sector will also experience an increase in M&A. If so, Deutsche will be among the advisors best able to benefit. “In the US, bank M&A has been muted in the past few years,” says Mr Gibb. “But given the strong capital position of the regional banks and the improving US economy, chief executives are feeling more confident, which could lead to an uptick in strategic activity.”

Most innovative investment bank for natural resources and commodities

Winner: HSBC

A major facet of energy markets over the past year has been stagnant commodity prices. This is something that has forced companies in the industry to focus on cost escalation. Firms, whether the largest integrated oil companies (IOCs) or smaller regional entities, are closely monitoring their cash needs and considering alternative, cheaper sources of financing to what they currently have.

They have also started to sell down assets which they feel do not fit in with future plans as a way of raising cash and satisfying shareholders. HSBC has been at the forefront on this trend, its large resources and energy group acting as an advisor on many such transactions. Two examples this year were advising Brazil’s Petrobras in April on the $380m sale of its Colombian subsidiary to the UK’s Perenco, and advising Kuwait Petroleum International in June when it bought Shell’s downstream assets in Italy. “Companies are also focusing on which assets are core and which aren’t,” says Matthew Wallace, global head of HSBC’s resources and energy group. “They continue to look at which assets are ripe for divestiture at acceptable prices.

“The largest IOCs have been under significant pressure to cut capital expenditure. Those that have done so have tended to get a good response from shareholders. There’s a heightened focus on returns on capital and balance sheet efficiency.”

Another area that HSBC has proved its strength in is the structuring of deals for and providing of finance for oil refiners. In June it was an arranger on a transaction of more than $500m for a European refiner (which did not want the deal made public) in which a special purpose vehicle (SPV) was created to purchase the refiner’s crude oil inventory. 

The SPV, which funded the takeover through a loan from HSBC and others, has the option of selling the crude back to the refiner after a set period of time. The deal allowed the refiner to monetise its inventory while at the same time fulfilling its legal obligation to maintain strategic oil reserves for its country, given that it can repurchase the inventory through the use of the option. 

“We have seen a number of important structured financings for the refining sector,” says Mr Wallace. “Inventory financings and credit sleeve transactions are a critical source of attractively priced bank funding for the independent refiners and traders.”

In the medium term, HSBC believes the rise of commodity traders, which are branching out and buying upstream and mining operations across the world from banks and IOCs, will continue. The bank is keen to exploit this trend. “The commodity trading companies are taking advantage of exiting investment banks and IOC asset sales to grow their activities,” says Mr Wallace. “They are becoming more significant.”

Most innovative investment bank for sovereign advisory

Winner: HSBC

Highly commended: Citi, Lazard

HSBC’s sovereign supranational and agency (SSA) business has taken a fresh turn since Allegra Berman joined as global head of public sector in June 2013. In the past 12 months, HSBC has implemented a new client coverage system and has ventured into new products, including equity event-type business.

Starting in August 2013, HSBC’s client coverage was transformed from product-specific to client-specific. “There is now one HSBC banker who is familiar with all aspects of a client’s business and can deliver the firm across geographies and products,” says Ms Berman. This has led to more efficient coverage and a cross-fertilisation of ideas.

HSBC has also focused on acquiring ‘trusted advisor’ status among clients and on more strategic, long-term projects. “We have grown significantly in more bespoke services such as advisory on SSA capital structure and equity deals,” says Ms Berman.  

Fincantieri’s E351m initial public offering is a case in point. The deal was the first privatisation IPO in Italy since 2007 and the largest ever in the country’s transportation sector. Fincantieri’s three-business structure and few public comparables did not make for a straightforward deal. Retail investors drove the IPO, accounting for 89% of purchases.

HSBC’s performance was also punctuated by the UK’s £200m ($326.82m) five-year debut sukuk, which marked the first case of a non-Islamic sovereign issuing in this format. “The exercise was not to raise a large volume of funding – the gilt market is far larger and more liquid. There was strong desire by the UK government to demonstrate that London is an innovative, genuinely global financial centre. It already has this status, but it does not rest on its laurels,” says Ms Berman.

Infrequent supply of UK paper in non-gilt format and a lack of European sovereign sukuk intensified demand for the trade. 

The deal also generated new supply. “The UK has opened the floodgates for other governments looking to do sukuk and others have followed, such as Hong Kong and South Africa,” says Ms Berman.

HSBC has also capitalised on the ballooning SSA green bond sector. The bank priced the International Finance Corporation’s inaugural renminbi green bond – a Rmb500m ($81.5m) five-year bond listed in London – and NWB Bank of the Netherlands’ first ever socially responsible investment (SRI) bond – a E500m five-year bond – among others. 

Only a year ago, SRI bonds were mostly small in volume and targeted at the retail markets. In the past 12 months, however, issuance volumes have exceeded expectations. Green bonds now price flat to conventional instruments.

“There has been a mindset change from the very top of institutional money. People care more about this product,” says Ms Berman. SRI-bond issuers are also seen as comparatively safe and sustainable. “You want exposure to that as an investor, especially if it’s at the same price as conventional notes,” says Ms Berman.

Most innovative investment bank for technology, media and telecommunications

Winner: Deutsche Bank

Highly commended: UBS

Deutsche Bank, with its global platform and wide coverage, impressed the judges to win the technology, media and telecoms category. In a fast-evolving landscape of ever-new technological advances and telecoms businesses increasingly offering innovative services beyond their traditional remit, Deutsche Bank has managed to stay at the centre of the technological world.

The bank has been active in initial public offerings (IPOs) for tech companies across the globe in the past 12 months. According to Chris Colpitts, co-head of technology, media and telecoms at Deutsche Bank, tech businesses in the US continue to be the main driver of another record year for the bank when it comes to IPOs. “We spend a lot of time with teams from across the bank to make sure we follow what is going on in the sector and think about how we can add value for our clients. This is especially the case in tech, where new clients are created all the time through the IPO markets,” he says. 

In the past 12 months, Deutsche Bank has been involved in a high-profile deal for social media network Twitter, which raised $2.1bn, as well as the IPO for financial information services provider Markit and the follow-on offering for information and measurement company Nielsen. 

The bank was also active in Asian tech IPOs, with a particular focus on China, though it also worked on the largest ever Asian tech IPO for technology joint venture Japan Display, with was worth Y389bn ($3.1bn).  

A trend among large businesses has been to create shareholder value through buybacks, often related to bond issues. One of the examples was Apple, which, in a deal arranged by Deutsche, used the proceeds of a $12bn bond issue to buy back stock. 

“If you go round the list of the mega-large caps, we see a trend of dividend increases and stock buybacks financed by cash on companies’ books or through additional borrowings,” says Mr Colpitts. Deutsche Bank also arranged transactions with similar aims for large caps such as IBM and Cisco.

Across the technology, media and telecoms arena, mergers and acquisitions (M&A) picked up, with consolidation particularly affecting in the European cable and telcoms market. It was here that Deutsche Bank was involved in the largest transactions of the past 12 months, including the takeover of Spanish telecommunications company Ono by Vodafone for Ä7bn, and the purchase of French mobile company SFR by Altice-owned Numéricable, which was backed by the largest ever European high-yield bond financing. 

North America is a traditional area for strong telecommunications M&A activity, and it was here that Deutsche Bank advised Japanese company Softbank on its $21.6bn merger with the US’s Sprint Corporation, creating the world’s third largest global telecoms company with 96 million users and revenues of $81bn.