IFR 06 13 2020 PDF room (1)

JUNE 13 2020 ISSUE 2337 www.ifre.com Too much, too soon for frenzied credit market: reality bites at end of rollercoaster week In demand: six European sovereigns raise €40bn from €303bn of orders in just two days Lift-off for €10bn buyout financing for ThyssenKrupp’s elevators division STRUCTURED FINANCE PEOPLE & MARKETS LOANS LOANS Morgan Stanley to reopen UK RMBS with £300m BTL deal 05 Loss adjuster: derivatives losses weigh on trading PROlTS 06 EQT’s €2.3bn fund lNANCINGûRAISESû the bar for private equity and ESG 07 3ANTANDERûROCKETSû UPûRANKINGSûASû CRISISûSHAKESûUPû European lending 10 IFR’s ESG Financing Briefing IFR’s ESG Financing Briefing is a subscription service offering daily news, data and analysis on green and ESG financing from across the Refinitiv Capital Markets Insight Team To subscribe or learn more, e-mail ifr.clientsupport@refinitiv.com Upfront „ OPINION INTERNATIONAL FINANCING REVIEW The coming storm Secondary education F I inancial markets got a dose of reality last week They needed it At the begining of the week, equity and credit markets were chugging along as if the March and April selloffs were an aberration Data showing the US unemployment rate was “only” 13.3% in May was deemed good news It wasn’t It was terrible and a stark illustration of the economic devastation being wrought by Covid-19 Yet the S&P 500 had turned positive for the year, the Nasdaq hit a record high and credit market indices were moving closer towards levels that prevailed in January and February rather than the peak of the sell-off in March That changed on Wednesday after Federal Reserve Chair Jerome Powell’s sober assessment of the US economy and THENûCONlRMATIONûOFûANûUPTURNûINûREPORTEDûCORONAVIRUSû cases in parts of the US Both were blunt reminders of what is actually happening to those who had got heady on the easing of lockdowns and the prospect of a quick recovery As a result, on Thursday, US and European equity markets saw their biggest one-day falls since March – and credit markets suffered in sympathy Whether this becomes another prolonged sell-off or a few unsettling days before markets go on their merry way again remains to be seen But the shock was coming In the bond market, issuers were getting greedy and investors were back in “hunt for yield” mode “Madness”, “nuts”, “ridiculous” were just some of the words bankers used to describe the action Corporate hybrids? Yes please Bank AT1s? Not a problem Asian real estate? Here’s a US$20m order 4HEûDISCONNECTûBETWEENûECONOMICûREALITYûANDûlNANCIALû markets has never been greater We all know why, of course So far this year, announced GLOBALûlSCALûANDûMONETARYûSTIMULUSûAMOUNTSûTOû53TRN û according to Bank of America !NDûTHATûlREPOWERûHASNTûALLûBEENûUSEDûUPû"UTûWHILEûTHEû support of governments and central banks is necessary and right following the coronavirus outbreak, one day there will have to be a reckoning One day, companies that are maintaining a zombie-like existence will be unable to borrow any more money to cover their ever-bigger debt piles One day, the economic realities of what’s happening will make themselves felt f the latest Hong Kong listings are any guide, Chinese companies have little to fear from US threats to kick them off American exchanges The rapturous response to the secondary listings of Netease and JD.com underlines the depth of the local following for big Chinese technology stocks JD.com’s 53BNûSHAREûSALEûISûTHEûCITYSûMOSTûPOPULARûPUBLICû OFFERINGûOFûTHEûYEAR ûWITHûTHEûRETAILûPORTIONûCLOSEûTOûû TIMESûOVERSUBSCRIBEDû.ETEASEûPOSTEDûAûSOLIDûlRST DAYû pop, and traded on Friday at a small premium to its US price These listings challenge the assumption that Chinese companies would somehow struggle to fund their expansion without access to the US equity market -OREûSIGNIlCANTLY ûTHEYûALSOûLESSENûTHEûTHREATûOFûAûFORCEDû delisting if Chinese companies fail to make their audit trail available to US regulators Once a secondary listing is in PLACE ûITûWOULDûNOTûBEûDIFlCULTûFORûAû#HINESEûCOMPANYûTOû make Hong Kong its primary trading venue, bringing international shareholders along with them In fact, that switch may be already under way Alibaba, which started the ball rolling with its US$13bn Hong Kong listing last November, has seen a much bigger shift in its shareholder base than expected, with about 46% of all trading over the past month now taking place in the city On Thursday, 33 million Alibaba shares changed hands in Hong Kong, versus 29.7 million (via 3.71 million ADRs) the same day in New York, giving Hong Kong a 53% share At 55%, the Hong Kong stock will be deemed to have become Alibaba’s primary listing, in a test the exchange applies over THEûWHOLEûlNANCIALûYEAR A Hong Kong primary listing would not exempt Alibaba from any US disclosure rules, but it would make it eligible for the Stock Connect trading link with mainland China, opening up a new investor base It would also simplify the cancellation of its New York listing, if such a move were to be enforced If trading in JD.com and Netease follows a similar path, any US attempts to use the capital markets as a trade or political bargaining chip will carry little weight The sooner politicians come to that conclusion, the better International Financing Review June 13 2020 Top news Bottomless demand for sovereigns 04 Return of UK RMBS 05 Derivatives losses weigh 06 Too much, too soon for frenzied credit market? „ Bonds Investors gravitate towards riskier structures but mini sell-off brings renewed doubts BY SUDIP ROY Questions about the intensity of the credit binge were being raised towards the end of last week after US and European equity markets suffered their biggest one-day falls since March on Thursday, bringing doubts about whether the pace would be sustained A sober assessment of the US economic outlook by Federal Reserve Chair Jerome Powell on Wednesday, and a jump in reported coronavirus cases in some US states in the south and west on Thursday, led to renewed selling Whether this becomes a prolonged sell-off or just a minor correction of a market that had risen too fast, too soon remains to be seen, but both Powell’s comments and the coronavirus data delivered a reality check to investors who had begun to get excited about the prospect of a quick economic recovery “I think we needed it as the market was too frothy and issuers were getting greedy,” said a senior banker on Friday Bankers may now have to reassess their pipelines and the speed at which they planned to bring deals into the market “We had a few issuers early in the week that said ‘no’ as we were a few basis points wider Now I guess they are 25bp wider So that could mean they say ‘no way, I need to get the 25bp back’ or they could say ‘OK, I messed up and this could retrace more’ It’s too early to tell,” said the banker The good news for bond markets is that the technical support is still huge “Investors – and the ECB – are still buying We will just need to see higher new-issue premiums Net-net, I think we slow a bit, but don’t stop,” said the banker Even on Thursday as the S&P 500 fell nearly 6%, some bond issuers still managed to print deals While a public holiday in parts of Europe meant the euro market took a breather, three US high-yield issuers priced deals and THAIOIL sold a US$1bn dualtranche offering – inside fair value too – with some of the paper going to US accounts The second half of the week WASûINûSTARKûCONTRASTûTOûTHEûlRSTû half as primary markets on both sides of the Atlantic were busy – despite the odd no-go call While sovereigns led the way, WITHûlVEûEUROZONEûGOVERNMENTSû raising funds and three other European nations pricing publicly syndicated bonds, the credit markets across the world were also active as investors gravitated towards lower-rated issuers and riskier structures “The huge bid for bank capital, corporate hybrids, Asian high-yield and so on is incredible,” said another senior banker earlier in the week The market backdrop was so good ahead of Wednesday’s FOMC meeting that some thought it was even better than at the start of the year even if credit spreads haven’t recovered to the tights of that period h4HEûMARKETûISûONûlREûANDû probably better than January and February when it was thought we were in a utopian phase,” said a syndicate banker before Powell’s comments “I personally don’t buy this strength Give it three to six months and I think it has to unravel as the reality and costs of Covid are seen” REALITY CHECK? At €269bn, publicly syndicated issuance by European sovereigns in the euro and sterling markets is already almost double the amount raised in the whole of 2019 No other year in recent times has seen €200bn of issuance As for euro issuance overall, the total for the year has already RECOVERING GROUND THE AVERAGE YIELD ON EURO BB CREDITS % 7.5 6.5 5.5 4.5 3.5 2.5 1.5 2/1/20 2/2/20 2/3/20 2/4/20 2/5/20 Source: iBoxx/Refinitiv International Financing Review June 13 2020 2/6/20 SURPASSEDûõBNû4HEûlRSTû three days of last week saw about €60bn of issuance – from SSA through to high-yield – with the week shortened by the Corpus Christi holiday on Thursday It is an even more incredible story in the US where investment-grade issuance volume of US$1.1trn is just US$27bn shy of the amount raised in the whole of 2019 The full-year record of US$1.33trn set in 2017 looks set to be smashed But while supply has boomed ever since central banks began pumping unprecedented amounts of liquidity into the lNANCIALûSYSTEMûINûRESPONSEûTOû the coronavirus outbreak, the rally was causing a sense of disquiet in some quarters “I personally don’t buy this STRENGTHû3HORTûTERMûlNEûTHEREû is a huge amount of cash trying TOûlNDûAûHOMEûANDûCERTAINû SECTORS ûSUCHûASûTECH ûWILLûBENElTû and rightly should be strong But give it three to six months and I think it has to unravel as the reality and costs of Covid are seen,” said one fund manager Others agreed that there will be an eventual fallout “Maybe lNANCIALûMARKETSûHAVEûNOWûJUSTû BEENûCOMMODITISEDûBYûlSCALûANDû monetary stimulus, the latter mostly It’s simply now too much money chasing too few lNANCIALûASSETS û INCLUDINGûõBNûOFûDOMESTICûEXPOSURE Who’s moving where… Ashish Jhajharia and Saadi Soudavar have been promoted to co-heads of EMEA ECM at DEUTSCHE BANK Jhajharia was previously head of syndicate and Soudavar covered a number of countries including the UK, Greece, Turkey, the Nordics and the 18 Benelux region Josef Ritter, head of EMEA ECM since the departure of co-head Ed Sankey to HSBC last June, is now co-head of global ECM alongside Jeff Bunzel He is also taking on the chairmanship of the EMEA reputational risk committee International Financing Review June 13 2020 NATIXIS has appointed Simon Eedle to head its corporate and investment banking business in Britain and Barbara Riccardi (left) as regional head of CIB for the Middle East Eedle takes over from Serge Ekue, who left in March, and will be based in London Eedle joined Natixis in 2012 as regional head of CIB for the Middle East, based in Dubai Riccardi joined Natixis in 2010 and will stay in Dubai and oversee CIB there, in Turkey and a new office in Saudi Arabia People Markets & NEW NORMAL #ITIGROUPûCHIEFûlNANCIALûOFlCERû-ARKû-ASONû said it’s too soon to tell what the new normal looks like But, having bankers spread out from centralised hubs has revealed potential real estate opportunities “We’ve got to let some of this play out a bit more to see what the new normal looks like, but we expect there will be some things worthy of considering,” Mason said Some, however, expect the new normal to look a lot like the old normal “We’re in the relationship-building business,” said Moelis co-president Navid Mahmoodzadegan “And it’s hard to build relationships if you’re not sitting in front of people So I suspect once we get through this crisis, our real estate footprint won’t look too much different than it has in the past.” Philip Scipio The EBA report said capital ratios continued to improve last year, and the weighted average Common Equity Tier ratio across the banks was 14.8% at the end OFû$ECEMBER ûUPûFROMûûATûTHEûENDûOFû September All banks had a ratio above 11%, well above regulatory requirements, the EBA said Banks in Spain had the lowest average #%4ûRATIOûOFûûATûTHEûENDûOFû$ECEMBER The EBA said asset quality of EU banks also remains on an improving trend, although it warned last month that could reverse due to the impact of the coronavirus Non-performing loans represented 2.7% of ASSETSûATûTHEûENDûOFû$ECEMBER ûLESSûTHANûHALFû THEûLEVELûlVEûYEARSûAGOû"UTûTHEûSCALEûOFû.0,Sû remains a problem in several countries – the ratio was 35.2% in Greece, 19.3% in Cyprus and 6.7% in Italy Steve Slater Cerberus demands changes at ‘disastrous’ Commerzbank 53ûPRIVATEûEQUITYûlRMûCERBERUS is calling on COMMERZBANK to appoint two of its nominees to the supervisory board, cut costs and adopt a new strategy, as it battles to make a success of a big bet on German banks In a letter to Commerzbank’s chairman last week, Cerberus complained that the bank had failed to heed its advice after more than 70 meetings Shares in Germany’s second-biggest bank have fallen about 60% since Cerberus bought a 5% stake in 2017 The investor, describing Commerzbank’s performance as “disastrous”, demanded it APPOINTûTWOûhHIGHLYûQUALIlEDûINDIVIDUALSûTOû BEûIDENTIlEDûBYûUSvûTOûITSûSUPERVISORYûBOARD Cerberus said shareholders would be HIGHLYûSUPPORTIVEûOFûhSIGNIlCANTûCHANGEvûTOû the supervisory board, management board and strategy, but did not give details on what the new strategy should be “The window of opportunity to address the challenges faced by Commerzbank is RAPIDLYûCLOSING vû#ERBERUSûWROTEûINûTHEûlVE page letter, seen by Reuters Commerzbank said in a statement it was FOCUSEDûONûCOSTSûANDûEFlCIENCYûh4HEûBANKû takes careful note of shareholders’ opinions – including critical ones,” it said Such public shareholder campaigns are rare in Europe, and in Germany activist investors are often viewed warily – as SHAREHOLDERSûFOCUSEDûONûSHORT TERMûPROlTSû rather than what is best for companies in the long term The German government is the largest shareholder in Commerzbank with a 15% stake “In my view, state ownership does not make it any easier for Cerberus to achieve its strategic goals,” said Klaus Nieding of SHAREHOLDERûLOBBYûGROUPû$37 COST CUTS The 150-year-old Commerzbank has had a rough few months as it swung to a loss, halted its 2019 dividend plans, backtracked on the sale of its Polish lender mBank, faced credit rating downgrades, and lost a longstanding sponsorship deal with a local SOCCERûTEAMûTOûRIVALû$EUTSCHEû"ANK Commerzbank, bailed out by the state DURINGûTHEûLASTûlNANCIALûCRISIS ûHASûALSOû WARNEDûITSûTARGETûFORûTURNINGûAûPROlTûINûû now seems “very ambitious” amid the coronavirus outbreak Commerzbank CEO Martin Zielke said on Thursday the bank was focused on cutting costs and “we see additional potential beyond current plans” He plans to present additional savings measures in August It is in talks with unions about staff reductions “The precarious situation of Commerzbank requires swift and decisive action now” One top investor said Cerberus’ pressure could help in that regard “Perhaps Cerberus’ move will even help management to push through more cost-cutting measures with the unions,” the investor said Just months after buying into Commerzbank, Cerberus also took a 3% STAKEûINû$EUTSCHEû"ANK Cerberus was behind a push to merge the two banks last year, people told Reuters at the time, though the effort failed and both banks embarked on separate restructuring measures “The precarious situation of Commerzbank requires swift and decisive action now,” Cerberus wrote, demanding a reply by June 12 Patricia Uhlig, Tom Sims Please contact us if you have information about job moves: peoplemarkets@refinitiv.com Daiwa Securities Group’s boutique investment bank, DC ADVISORY, has hired Ajay Bijoor from Guggenheim Securities as a managing director in its debt advisory and restructuring group Bijoor was most recently a managing director in Guggenheim’s restructuring group and was previously a managing director in the restructuring group at Peter J Solomon He began his career at Credit Suisse First Boston International Financing Review June 13 2020 UNICREDIT has hired Roberta Marracino as head of ESG strategy and impact banking Marracino will start on July and will also coordinate the UniCredit Foundation’s activities She will report to Wouter Devriendt, head of finance and controls Marracino replaces Maurizio Beretta, who has led the Italian bank’s ESG and social impact banking in recent years Marracino joins from Zurich Insurance and previously spent 15 years in two spells at McKinsey 19 Bellwether Bellwether: n From the practice of placing a bell around the neck of a castrated ram so that it might lead its flock a stake in Commerzbank, appears to have lost patience in Germany’s second biggest lender and recently lambasted it for a disastrous performance and demanded a change in strategy "UTûTHEûPRIVATEûEQUITYûlRMûISûAûGLUTTONûFORûPUNISHMENTû and is also a shareholder in Commerz’s bigger rival $EUTSCHEû"ANK ûWHEREûITûISûUNDERSTOODûTOûHAVEûHADûAû hand in the seemingly immovable Paul Achleitner’s “decision” to stand down as the bank’s chairman in 2022 So it’s not to be messed with, something that will come as no surprise to those with a working knowledge of Greek mythology – or access to Wikipedia Cerberus, often referred to as the hound of Hades, is a multi-headed dog that guards the gates of the underworld to prevent the dead from leaving Which makes its shareholding in Germany’s two troubled banks entirely logical As any fool knows, the important thing about hounds is not to show them any fear But that may be too late for Commerz, whose shares have fallen a terrifying 60% since Cerberus bought a 5% stake in 2017 “The window of opportunity to address the challenges faced by Commerzbank is rapidly closing,” Cerberus wrote ominously in a letter to the bank, in which it demanded the appointment to the bank’s board of two hHIGHLYûQUALIlEDûINDIVIDUALSûTOûBEûIDENTIlEDûBYûUSvû (IGHLYûQUALIlEDûINûWHATûTHOUGH #%2"%253 û7()#(û(/,$3 IQBAL KHAN LASTûWEEKûGAVEûHISûlRSTûBIGûPUBLICû presentation since taking over as co-head of global wealth management at UBS He was being interviewed by Jernej Omahen, Goldman’s head of European bank RESEARCH ûATûTHEû53ûlRMSûVIRTUALûBANKûCONFERENCE Although it was online, you could still feel the tension when Omahen opened up by saying Khan joined at “an interesting time” Was he actually going to ‘go there?’ Sadly, it turned out he was referring to the coronavirus, not Spygate If you work at Evercore and see Ralph return to the office after lockdown armed with a magnifying glass and a fly swatter, look busy %6%2#/2%3û02%3)$%.4û!.$ûCEO Ralph Schlosstein says the global downturn in M&A due to the CORONAVIRUSûHASûPLACEDûTHEûlRMûINû unfamiliar territory “Over the last 10 years we haven’t needed to focus on costs down to the gnat’s ass,” Schlosstein told Morgan Stanley’s bank conference Now, Evercore is looking to just that as it grapples with a lower growth environment So if you work at Evercore and see Ralph RETURNûTOûTHEûOFlCEûAFTERûLOCKDOWNû armed with a magnifying glass and AûmYûSWATTER ûLOOKûBUSY ROYAL BANK OF Scotland has shaken up the management of NatWest Markets for the second time in six months 3INCEû$ECEMBERûTHEûUNITûHASûBEENûRUNûBYû#%/û2OBERTû Begbie and CFO Robert Horrocks on an interim basis But now Begbie has been appointed to the job fullTIME ûWHILEû(ORROCKSûHASûMADEûWAYûFORû$AVIDû+INGû3Oû the unit’s two-Bob management team now has a more permanent look „ Who’s moving where… „ MOELIS has hired Philippe Gallone from Morgan Stanley as a managing director in its healthcare group, based in London Gallone had been co-head of EMEA healthcare banking at Morgan Stanley since 2016 He has more than 15 years of investment 20 banking experience and advised on over US$200bn of transactions He started his career at Credit Suisse First Boston, and is a physician by training „ Simon Field has been appointed global head of escrow in HSBC‘s investment bank, as part of a push to expand the business Field will be part of the issuer services team and is based in Singapore, where he relocated to two years ago, and is currently head of public-sector banking for South and South-East Asia He joined HSBC in 2008 and has worked in securities services and global banking HSBC said it plans to grow its escrow business, in which an agent holds an asset for safekeeping International Financing Review June 13 2020 „ Jonas Wikmark has „ Josh Presley has been promoted to co-head of Nordics banking for JP MORGAN, tasked with driving growth in one of its major European markets Wikmark, a 17-year veteran of the US bank, will share his new role with Klaus Thune, Reuters reported moved back to London from New York at CREDIT SUISSE and switched roles from syndicate to debt capital markets Presley will head corporates for the UK and Swiss regions People Markets & Begbie given reins to lead NatWest Markets turnaround ROYAL BANK OF SCOTLAND has appointed former lXED INCOMEûTRADERûRobert Begbie as chief executive of NATWEST MARKETS on a permanent basis and hired former MUFG executive David King as the investment bank UNITSûlNANCEûCHIEF They will have the task of turning round the business after years of struggle, which will include halving its size and axing jobs to focus on core products such foreign EXCHANGE ûlNANCINGûANDûHEDGINGûFORû corporate clients Begbie has been interim CEO of NatWest -ARKETSûSINCEû$ECEMBERûû(EûTOOKûOVERû from Chris Marks, who was axed by RBS CEO Alison Rose shortly after she took over in November Begbie was previously treasurer of RBS He joined RBS in 1994 as head of lXED INCOMEûTRADINGûANDûHASûHELDûVARIOUSû roles, including head of equity derivative and structured investor product sales, head of balance sheet management, and head of capital planning and management for US UNITû#ITIZENS ûACCORDINGûTOûHISûPROlLEûONû LinkedIn RBS said King was expected to take over as CFO some time this summer He was previously CEO of MUFG Securities EMEA for nine years until April 2019, according to HISû,INKED)NûPROlLE King replaces Robert Horrocks, who has BEENûINTERIMû#&/ûSINCEû$ECEMBERû(ORROCKSû took over from Richard Place in the role and WASûPREVIOUSLYûTREASURYûlNANCEûDIRECTOR King will join Begbie on the NWM board as an executive director Rose axed NWM’s two leaders a month after she took over, putting her stamp on the business before announcing another restructuring attempt in February Fixing the investment bank is one of her biggest UBS rejigs private markets unit UBS has made changes to its private marketsfocused groups in its investment banking and wealth management divisions aimed at bolstering collaboration between the two units so it can capitalise on increased client demand for private market opportunities The changes include newly created regional positions of head of distribution within the direct investments group Giuseppe De Filippo has been appointed to that position for Europe, the Middle East and Africa, and Enrico Mattoli WILLûLEADûITûFORû!SIA 0ACIlC ... SYNDICATIONS €bn equivalent 300 250 200 150 100 171 125 121 133 167 122 139 269 2 013 2014 2015 2016 2017 2018 2019 2020 ytd 50 Source: IFR though they were higher-rated names,” he said Not that... Refinitiv International Financing Review June 13 2020 10/6/20 6/6/20 8/6/20 2/6/20 4/6/20 31/5/20 29/5/20 27/5/20 23/5/20 25/5/20 21/5/20 19/5/20 17/5/20 13/ 5/20 2,850 2,800 15/5/20 TAKING ADVANTAGE... the better International Financing Review June 13 2020 Top news Bottomless demand for sovereigns 04 Return of UK RMBS 05 Derivatives losses weigh 06 Too much, too soon for frenzied credit market?