Awards for Excellence 2012: Barclays

Awards for Excellence 2012: Best Global Flow House

An ability to adapt while sustaining a market leading global flow business sets Barclays apart.

There have been some seismic shifts among investment banks active in the flow markets in the past year but not at the top, where Barclays, Deutsche Bank and JPMorgan dominate and should expect to capitalize further on rivals that are scaling down or exiting businesses entirely.

In a world where fixed-income, currencies and commodities sales and trading is becoming increasingly like cash equities, senior management of many of the investment banks outside of this top tier are being forced to decide whether they have the appetite or ability to run a full-scale all-in-one business servicing clients in all the product areas globally.

For Barclays, Deutsche Bank and JPMorgan, which provide institutional clients with this full-scale global capability, the question is not can they grow, but, by how much and in what direction.

Deutsche Bank and JPMorgan have been aggressively building their commodities trading businesses in recent years, while Barclays has sought to expand in cash equities and equity derivatives, and foreign exchange too.

While all three firms can claim success in each of these areas, in addition to sustaining their enviable market shares in rates, credit and FX, it is Barclays that stands out this year.

The UK investment bank has not only performed strongly in serving clients across the whole spectrum of rates, credit and FX, to commodities and equities, but more importantly is leading the advance of a development that could define the future of flow markets – over-the-counter clearing.

Guglielmo Sartori di Borgoricco, head of distribution at Barclays, says: "This is the natural evolution of that flow monster role, and an area that we believe is elemental to the flow market. Clearing will be the umbilical cord to the flow business in the future."

What investment banks and the broader finance industry are preparing for is that all standardized OTC derivative contracts must be traded on exchanges or electronic trading platforms and cleared through central counterparties by end-2012 at the latest.

This has ramifications for the OTC derivatives market, the investment banks and their investor clients too.

Arguably well ahead of others, Barclays has invested accordingly, and is capitalizing on its lead.

"What does it mean to be a flow monster? The liquidity provision is very important, the ability to deliver great content is important, and the clearing side is the completion of it all, because once you have it all – the front office, back office and pipes working together – then you have great liquidity, content and execution. That is precisely how Barclays is set up," says Sartori di Borgoricco.

He adds: "What our OTC clearing team is doing today is just as pioneering as the global netting agreement we took the lead on some eight years ago."

Ralph Segreti, head of FICC OTC clearing distribution for Europe and Asia, is equally bullish, arguing that growth in this area is expected to boom

He says: "Clearing is an area where our work with clients really comes together. We realized early on that clearing was absolutely elemental to the future of our platform and that it would help us strengthen the partnerships we have with our clients. So we had an early and deep commitment to OTC clearing, and it is one where we are starting to reap the benefits."

Segreti believes this business is set to grow substantially from clearing roughly $60 billion of trades a week currently.

He says: "We are only doing a fraction of the business we expect to do, but we have a very scalable solution in place and we are ready to facilitate the growth as it comes."

Time will tell if Barclays manages to up-scale this business to a size that generates healthy returns, but in the meantime the firm’s global flow sales and trading business will doubtless continue to perform strongly, and particularly in areas where it has most to gain.

In equities, for instance, Barclays now has an 8% market share of all US volume, and in Asia the firm has tripled its market share on the Tokyo Stock Exchange and increased its market share on the Hong Kong Stock Exchange.

Barclays – ranked third by market share in Euromoney’s 2011 FX survey – is also gaining ground on Deutsche Bank’s dominance in the global FX market.

Nick Howard, head of distribution for Europe, the Middle East and Africa, says: "We have been consistently building our FX business in all three regions. In the Americas it takes a couple of years to on-board some of the big accounts, but we have gained market share there, and that is partly a result of the tailwind effect from the Lehman acquisition. We’ve also invested heavily in technology, particularly around the FX forwards market."

Awards for Excellence 2012: Best Global Debt House

Barclays has shown skill and strength in adversity to cement its place as the leader in DCM this year.

This year more than any other, success in DCM has required both breadth and depth. With markets as jumpy and unpredictable as they have been, the best global debt house must not only have excellent global reach, it must also be product, tenor and currency agnostic. This year that house is Barclays.

Barclays and its shortlisted competitors dominate the DCM markets. But over the past 12 months the UK bank has been everywhere – among the top-three ranked underwriters across all FIG, SSA, US dollar, euro and sterling issuance. This focus on both domestic and cross-border business is underpinned by an enviable trading, distribution and research platform.

League-table strength is a given in this category, but a closer look at the business that Barclays has been writing gives an indication of the regard in which this team is held. In SSA, under the most challenging circumstances imaginable, the bank has excelled amid the storm. It is the number-one underwriter for EFSF and ESM issuance – quite a feat for an institution that is not even a eurozone bank. "There is no natural embedded advantage – we are thought of as a British bank not an indigenous eurozone bank," says Charlie Berman, head of public-sector EMEA at Barclays. "These issuers want this team working with them on the tough deals." The bank also underwrote the first benchmark issue for the Republic of Iceland since 2006. Its strength in volatile markets also saw it have 50% market share of corporate issuance in Europe in October 2011 – an extremely stressed time – and it has been instrumental in reopening peripheral markets in 2012. Deals such as those for Portugal’s Semapa and EDP required the kind of access to the domestic retail investor base that very few global banks have.

The past year has been a rollercoaster ride of risk-on, risk-off sentiment, so the ability to identify and exploit relevant and untapped investor bases is a crucial skill. Barclays demonstrated this in spades last year across FIG and corporate issuance. "Access is always about navigating windows, so you need to be with the bank that is in the flows," says Mark Geller, head of FIG syndicate in London. In its top-tier US franchise it dominated in yankee bank issuance and US dollar covered bonds – key themes of the past year as some banks’ euro liquidity evaporated. This strength was in evidence on the corporate side as well, with yankee deals for BHP Billiton, Teva, GlaxoSmithKline, Tesco and Pernod Ricard among many others. Barclays’ Asian and emerging market yankee business included the underwriting of deals for Honda, Toyota, Brasil Telecom, Ipic and KNOC.

The bank’s strength in cross-border liquidity was also demonstrated as sole arranger of the groundbreaking ¥50.7 billion ($636.2 billion) Tokyo Pro-bond for ING Bank in April. It was ING’s debut benchmark bond offering in Japan. "This was an exceptionally important opening of previously trapped domestic liquidity," says David Lyon, managing director IBD FIG EMEA. The theme of trapped liquidity was also addressed in the UK, with pioneering retail bond deals for National Grid and Tesco Bank. Barclays was also sole arranger for Lloyds Bank’s US retail notes programme, which enabled the bank to access US dollar funding away from the institutional market. "This was an important diversification for an entity like Lloyds," says Lyon. In emerging markets the bank had success in opening new funding currencies with deals such as the debut SFr500 million ($520 million) issue for VEB and the £650 million ($1 billion) deal for Russian Railways.

Barclays’ US franchise is the bellwether of the entire firm and its strength was firmly in evidence this year. Its $13.3 billion sole underwrite on the bridge loan for Kinder Morgan’s acquisition of El Paso was the largest sole underwrite ever for a non-investment-grade credit and was done at the same time that other European banks did not even have access to the dollar market. When SABMiller was looking to refinance the $12.5 billion acquisition loan backing its acquisition of Foster’s it mandated Barclays for the preparation of the US 144a/RegS documentation, as an active bookrunner and as a billing and delivery bank.

One sector where Barclays has traditionally not been as strong as its closest competition is high yield, but the bank has made progress this year. "The engine behind the high-yield product has been the strength of our global distribution platform," says Peder Oien, co-head of European leveraged finance. Barclays has increased its share of the US high-yield market from 4.4% in 2009 to 7.1% in 2011, and in Europe it has a 7.2% market share so far this year – up from 3.4% in 2009. "This has not been an easy market to be operating in," says Oien. "It requires a lot of coordination and a unique set of skills." The firm was on four of the five largest deals in the US over the past year – HCA, Sprint, CIT Group and Chrysler – and has brought 31 new issuers to the European market since 2010. "We have a pretty unique story," says Jim Glascott, head of global DCM at Barclays. "It has taken us a long time to get this franchise to where it is today."

Best Investment Bank and Risk Adviser in United States

But one investment bank has not only kept a clean sheet, it has also managed to make headway in all areas of investment banking. Barclays wins the award for this year’s best investment bank in the US and for best US risk adviser. In DCM, Barclays ranks third in the league tables. The bank excels in being product agnostic, having an integrated loan and bond and securitized offering, and is known for its attention to detail.

Barclays is a leader in covered bonds, leading a $5 billion covered bond for TD Bank over the period. In investment grade debt it has led the last six deals by GECC – more than any other bank. In esoteric ABS, the bank is the leader in the market, with deals for Miramax and Dominos. Together with Deutsche Bank it successfully bid for a portion of the Maiden Lane III legacy AIG assets that were auctioned by the Fed in April this year.

In ECM, Barclays ranks seventh in the league tables and has a way to go to bring itself up to competing with such stalwarts as Morgan Stanley and JPMorgan. But in equity flow and hedging for clients the bank is a leader. It has a high share of US flow products and jostles for first place in block trading with Deutsche Bank. The bank advised Capital One when it needed $2 billion in equity to finance its acquisition of ING, suggesting instead an equity forward structure to de-risk the deal, showing its equity risk management capabilities to be top-tier.

In M&A, Barclays now ranks fourth in the league tables and last year was third for full-year 2011 – the only non-US bank to make that position in 12 years. Barclays was the sole underwriter of $13 billion of committed acquisition financing for the Kinder Morgan/El Paso transaction, the largest acquisition-related financing of the period and the largest ever sole underwriting to a non-investment-grade company. The bank was also financial adviser to Hewlett Packard in its subsequently troubled acquisition of Autonomy last August. It incorporated an FX hedge and a fully underwritten $8 billion bridge facility. Barclays is also a leader in the LBO M&A advisory sector.

The bank’s commitment to the US is exemplified by the addition of another global senior manager to the country – Tom Kalaris is now going to be splitting his time between New York and London as executive chairman of the Americas as well as overseeing wealth management. Jerry del Missier, who has overseen the corporate and investment bank through its Lehman integration and was recently appointed COO of the Barclays group, says the bank is well positioned. "We came out of the crisis in a stronger strategic position and that has allowed us to continue to win market share and build our franchise. Keep in mind that the US is the largest investment banking, wealth management, credit card and investment management market in the world, and in terms of fee share will remain the most dynamic economy in the world for many years. As a strong global, universal bank operating in a competitive environment that is undergoing significant retrenchment, we like our position."

Best Flow House

Despite a disappointing final quarter of 2011, Barclays has strengthened and sustained its position in European rates, credit, foreign exchange, equities and commodities in the past year despite losing its head of commodities trading, Roger Jones, to Swiss trader Mercuria.

In rates, Barclays was voted the number one rates house across euros, sterling and dollars for western Europe, according to the March 2012 Euromoney rates survey, and was ranked the number one house in overall rates, with a 13.8% market share in Europe, by Greenwich Associates.

It was a similar story in credit, where Barclays maintained its leading position in high-grade and high-yield credit flow trading in Europe, while in FX it is a clear top tier franchise, with a market share of 10.1% in the 2012 Euromoney FX survey.

But it is in commodities and equities that Barclays built momentum and growth to make some gains within its flow business.

Total income from FICC in the first quarter of 2012 was £2.4 billion – up 9% on the same period a year earlier on the back of raw materials trading – with total income from equities and prime services slightly up over the same period, at £550 million.

Within that, the equity derivatives business has been particularly strong, with Barclays now dealing with more than 300 clients across Europe, a large chunk of which were added in 2011.

The debt markets in Europe could hardly have been more frustrating and challenging this year. They have necessitated agility, stamina and good timing – particularly in the more challenging areas of FIG and euro-denominated issuance.