IFR Magazine - October 27, 2018

Top news

Strong get stronger in equities

„ People & Markets Big five US banks enjoy 18% surge in equities revenue this year

BY STEVE SLATER

%QUITIESûDESKSûAREûENJOYINGûAû
RESURGENCEûASû7ALLû3TREETSûlNESTû
POWERûAHEADûFORûTHEIRûBESTûYEARû
SINCEûTHEûlNANCIALûCRISIS ûTHANKSûTOû
NEWûTECHNOLOGY ûVOLATILEûMARKETS û
NEWû%UROPEANûREGULATIONSûANDû
THEûBENElTSûOFûSCALE
2EVENUESûFROMûEQUITIESûTRADINGû
ATûTHEûBIGûlVEû53ûINVESTMENTûBANKSû
TOPPEDû53BNûINûTHEûlRSTûNINEû
MONTHSûOFûTHEûYEAR ûUPûûFROMû
LASTûYEARûANDûTHEûHIGHESTûTALLYûSINCEû
THEûLANDSCAPEûWASûTRANSFORMEDûINû

)Nû%UROPE ûUBS and BARCLAYS
AREûFARINGûWELL ûBUTûDEUTSCHE
BANK ûCREDIT SUISSE and smaller
lRMSûAREûTHEûONESûLOSINGûSHARE
4HEûSTRUGGLEûFORûSMALLERûBANKSû
ANDûBROKERAGESûCOULDûSEEûSOMEû
CONSOLIDATE ûFORMûJOINTûEQUITIESû
VENTURESûORûCOLLAPSEûINûTHEûNEXTû
YEARûORûTWO ûBANKERSûSAYû)FûTHEYû
AREûSTRUGGLINGûINûONEûOFûTHEûBESTû
YEARS ûAûDOWNTURNûINûûORû
ûCOULDûTURNûTHEûSCREW
&ORûTHEûSUCCESSFULûBANKS ûTHEû
RESURGENCEûVINDICATESûHEAVYû
EQUITIESûINVESTMENTûAûCOUPLEûOFû
YEARSûAGOûDESPITEûSTIFFûCOMPETITIONû
AND ûATûTHATûTIME ûFALLINGûINCOME
h7EûAREûSEEINGûAûNUMBERûOFû
TRENDSûnûTECHNOLOGYûISûCHANGINGû
THEûINDUSTRYûFROMûAûCOSTû

PERSPECTIVEûBUTûITûCANûALSOûBEûSEENû

ASûAûCOMPETITIVEûADVANTAGEvûSAIDû

$AVIDû2USSELLûGLOBALûCO

HEADûOFû

EQUITIESûATû-ORGANû3TANLEY

h)NûADDITIONûREGULATIONûISûAû

MAJORûDYNAMICûWHICHûISûCHANGINGû

THEûMETHODOLOGYûOFûINVESTINGû

ESPECIALLYûINû%UROPEvûHEûTOLDû)&2

h!LLûTHESEûTHEMESûCOMBINEDû

AREûDRIVINGûAûSIGNIlCANTûCHANGEû

ACROSSûTHEûINDUSTRYûANDûTHEû

SELLSIDEûlRMSûDOINGûWELLûAREû

THOSEûTHATûADAPTEDûTHEûQUICKESTû

BYûUTILISINGûTHEIRûGLOBALûFOOTPRINTû

ANDûTECHNOLOGYûCAPABILITIESv

BIGGER AND BETTER

4HEûTHIRDûQUARTERûCONTINUEDûAû

TRENDûSEENûINûTHEûlRSTûHALFûOFûTHISû

YEARûTHOUGHûATûAûSLIGHTLYûSLOWERû

PACEûOFûGROWTH

JP MORGANSûTHIRD

QUARTERû

EQUITIESûREVENUEûROSEûûFROMûAû

YEARûAGOûOUTPACINGûTHEûAVERAGEûû

RISEûACROSSûTHEûlVEûBIGû53ûBANKSû

5"3ûLASTûWEEKûREPORTEDûAûûRISEû

INûEQUITIESûREVENUESûWHILEû

"ARCLAYSûENJOYEDûAûûJUMP

&ORûTHEûlRSTûNINEûMONTHSûOFûTHEû

YEARûMORGAN STANLEYSûEQUITIESû

REVENUESûTOPPEDû53BNûUPûû

ANDûTHEûlRSTûTIMEûANYûBANKûHASûHITû

THATûLEVELûBYûTHISûSTAGEûOFûAûYEARû

SINCEû

GOLDMAN SACHSûRANKEDûSECONDû

WITHû53BNûINûREVENUESûUPû

ûONûTHEûYEARûANDû*0û-ORGANû

FOLLOWEDûATû53BNûUPû

4HOSEûTHREEûAREûCEMENTINGûTHEIRû

TOPûPOSITIONSûACROSSûTHEûFULLûSUITEûOFû

EQUITIESûPRODUCTSûWHILEûBANK OF

AMERICA MERRILL LYNCH and CITIGROUP

ALSOûPOSTEDûDECENTûGROWTH

4HEûCLEARûCASUALTIESûHAVEûBEENû

$EUTSCHEûANDû#REDITû3UISSE

$EUTSCHESû53BNûFROMû

EQUITIESûTRADINGûTHISûYEARûISûDOWNû

ûFROMû53BNûATûTHEûSAMEû

STAGEûOFû

#REDITû3UISSEûSTILLûTOûRELEASEûITSû

THIRD

QUARTERûRESULTSûREPORTEDû

lRST

HALFûEQUITIESûREVENUESûOFû

53BNûDOWNûûFROMû

53BNûTHREEûYEARSûAGO

4HEûTWOûBANKSûBETWEENûTHEMû

HAVEûLOSTûABOUTû53BNûINûANNUALû

EQUITIESûREVENUEûINûTHREEûYEARSû

ALTHOUGHûINû#REDITû3UISSESûCASEû

CHANGESûINûBUSINESSûSTRUCTUREûMAYû

HAVEûEXAGGERATEDûTHEûFALL

MIFID BOOST

.EWû-I&)$û))ûREGULATIONSûINû

%UROPEûHAVEûCAUSEDûCLIENTSûTOû

SLASHûTHEûNUMBERûOFûBANKSûTHEYû

DEALûWITHûINDUSTRYûSOURCESûSAID

h7EVEûDElNITIVELYûSEENûOURSELVESû

PICKINGûUPûMARKETûSHAREû!NDû

-I&)$û))ûISûANûIMPORTANTûDRIVERûOFûnû

ITûISûNOTûTHEûONLYûONEûnûOFûSOMETHINGû

THATSûHAPPENINGûACROSSûTHEûSYSTEMû

WHICHûISûCONSOLIDATIONûINûTHEûTOP

THREEûSCALEûPLAYERSvû'OLDMANSû

lNANCEûCHIEFû-ARTINû#HAVEZûTOLDû

INVESTORSûAFTERûTHIRD

QUARTERûRESULTS

-ORGANû3TANLEYSû2USSELLûSAIDû

CONSOLIDATIONûHADûBEENûACCELERATEDû

BYû-I&)$û))ûh4HEûMARKETûISû

DElNITELYûSEEINGûAûCONCENTRATIONû

OFûWALLETûINTOûFEWERûHANDSv

(EûSAIDû-I&)$û))ûHADûSEENû

BUYSIDEûlRMSûDECIDEûWHOûTHEYû

VALUEûFORûRESEARCHûANDûADVISORYû

WHILEûALSOûGOINGûTOûBANKSûWITHû

THEûBESTûEXECUTIONûPLATFORMS

4HEûBIGûBANKSûAREûALSOûBENElTINGû

FROMûINVESTMENTûINûTHEIRûPLATFORMSû

INûTHEûPASTûCOUPLEûOFûYEARSûASûTHEYû

SOUGHTûTOûlLLûGAPSûACROSSûCASHû

EQUITIESûEQUITYûDERIVATIVESûANDû

PRIMEûBROKINGû4HOSEûMOVESûHAVEû

PAIDûOFFûASûHEDGEûFUNDSûANDûOTHERû

BUYSIDERSûLOOKûTOûUSEûFEWERûBANKSû

ACROSSûTHEûPRODUCTûSUITE

)NûTHEûPROCESSûBANKSûCANûWINûNOTû

ONLYûAûBIGGERûSHAREûOFûBIGûWALLETSû

BUTûALSOûMOREûHIGH

MARGINûBUSINESSû

SUCHûASûSTRUCTUREDûDERIVATIVES

*0û-ORGANûTHEûMARKETûLEADERûINû

EQUITYûDERIVATIVESûRAMPEDûUPûCASHû

EQUITIESûANDûPRIMEûBROKINGûTWOû

YEARSûAGOûANDûMADEûSIGNIlCANTûHIRESû

WHILEû#ITIGROUPûPICKEDûOUTûEQUITIESû

ASûAûKEYûAREAûFORûINVESTMENT

h7EREûGAININGûSHAREûMOSTû

NOTABLYûINûCASHûANDûPRIMEvû*0û

-ORGANû#&/û-ARIANNEû,AKEûSAIDû

AFTERûTHIRD

QUARTERûRESULTS

Calsonic gears up for Magneti buyout

„ Loans KKR-owned auto parts maker drives largest Asian LBO financing

BY WAKAKO SATO

*APANESEûAUTOûPARTSûMAKERûCALSONIC
KANSEIûISûRAISINGûABOUTûõBNûTOû
SUPPORTûITSûõBNûACQUISITIONûOFû
THEûHIGH
TECHûCARûPARTSûUNITûOFû
)TALYSû&IATû#HRYSLERû!UTOMOBILES û
INûWHATûWILLûBEû!SIASûLARGESTû
LEVERAGEDûBUYOUTûLOAN
Mizuho Bank ûMUFG ûSumitomo
Mitsui Banking Corp and Sumitomo
Mitsui Trust BankûHAVEûUNDERWRITTENû
THEûõBN
EQUIVALENTûSEVEN
YEARû
SENIORûlNANCINGûBACKINGûTHEû
BUYOUTûOFûMAGNETI MARELLI ûWHICHû
SPECIALISESûINûLIGHTING ûPOWERTRAINSû
ANDûHIGH
TECHûELECTRONICS

#ALSONICû+ANSEIûISûFOLLOWINGûAû

DIFFERENTûSYNDICATIONûSTRATEGYû

COMPAREDûWITHûAûPREVIOUSûLOANû

THATûWASûAGREEDûûMONTHSûAGOû

4HATûcBNû53BNûTHEN  û

SEVEN

YEARûFACILITYûWHICHûBACKEDû

ITSûLEVERAGEDûBUYOUTûBYû53û

PRIVATEûEQUITYûGIANTû++2ûWASûAû

RAREû*APANESEûCOVENANT

LITEûDEAL

&IVEûBANKSûCLUBBEDûTHEû

lNANCINGûDESPITEûTHEûLARGEûSIZEû

ANDûAûSOMEWHATûHIGHûLEVERAGEûOFû

ûTIMESû4HATûLOANûWILLûREMAINû

UNTOUCHEDûANDûWILLûNOTûBEû

RElNANCEDûASû#ALSONICûRAISESûTHEû

NEWûLOANûFORû-AGNETISûBUYOUTû

4HEûTOTALûOUTSTANDINGûDEBTûFORû

BOTHûCOMPANIESûWILLûBEûAROUNDû

cTRNûREPRESENTINGûLEVERAGEûOFû

LESSûTHANûSIXûTIMES

h4HEûLEVERAGEûMULTIPLEûISû

QUITEûMODESTûBECAUSEûOFûTHEûAUTOû

PARTSûSECTORvûONEûSOURCEûSAIDû

POINTINGûTOûTHEûROBUSTûCOMBINEDû

EARNINGSûOFûTHEûTWOûENTITIESûANDû

THEûSYNERGIESûTHEûACQUISITIONû

WILLûBRING

INTERNATIONAL SCOPE

3HARESûOFû#ALSONICûANDû-AGNETIû

WILLûFORMûTHEûCOLLATERALûFORûTHEû

NEWûLOANûTHREE

QUARTERSûOFû

WHICHûWILLûBEûDENOMINATEDûINû

YENûANDûTHEûREMAINDERûINûEUROS

4HATûSHOULDûHELPûWIDENûTHEû

UNIVERSEûOFûLENDERSûWITHûEXISTINGû

%UROPEANûLENDERSûTOû-AGNETIûKEENû

TOûRENEWûTHEIRûRELATIONSHIPSûWITHû

THEûTARGETûANDûFORGEûAûNEWûONEû

WITHû#ALSONICû)NTERNATIONALû

BANKSûINû!SIAûHAVEûALREADYûBEENû

SOUNDEDûOUTûONûTHEûNEWûLOAN

(OWEVERûTIGHTûPRICINGûANDû

ABUNDANTûLIQUIDITYûAMONGûTHEûFOURû

*APANESEûLEADSûCOULDûRESULTûINûLIMITEDû

SYNDICATIONû4HEûPRICINGûOFûTHEûNEWû

lNANCINGûISûLIKELYûTOûBEûSIMILARûTOûTHEû

PREVIOUSûcBNû,"/ûLOANûWHICHû

PAIDûAROUNDûBPûOVERû,IBOR

h)ûAMûHEARINGûITûISûAû*APANESEû

PRICINGûWHICHûISûPROBABLYûTOOû

TIGHTûFORû%UROPEANûBANKSvû

ANOTHERûSOURCEûSAID