Schroder Salomon Smith Barney has grabbed the top spot in Derivatives Week's first-ever ranking of structured medium-term note issuance, but the U.S. bulge bracket firm has had a slow start so far in 2003.
On the product side, inflation-linked MTNs have exploded in popularity. Last year the notes accounted for a mere 2.55% of the structured MTN market,
but they have rocketed to some 14.01% of total volumes in Q1.
French issuers and structurers have dominated the inflation-linked MTN league table, with BNP Paribas taking pole position on the dealer side and the country accounting for more than half of the top 10 issuers. This is largely because the French government has pioneered the European inflation-linked government bond market and BNP Paribas has underwritten several of those deals, according to Christopher Marks, head of European sovereign, supranational and agency origination in London. The structured MTN market was a natural progression from government debt.
Mike Tims, ceo of London-based MTN-i, the data provider for the tables, said inflation products appeal to investors reeling from losses in the equity markets who are looking to protect their capital and purchasing power. "There has been a shift from principal protection to value protection," added Tims.
The European Investment Bank, which took top spot in both the Q1 ranking of all structured MTNs and inflation-linked issuance, has big plans for the inflation market. Carlos Ferreira da Silva, head of euro funding in Luxembourg, said so far it has entered swaps to hedge its euro inflation exposure from debt issuance, but is now looking at issuing structured debt linked to inflation and passing it through in the form of inflation-linked loans, without hedging the risk with a bank. Ferreira da Silva said it would require lining up lending agreements before the debt issue, or if a liquid swap market develops, parking funds on its balance sheet and hedging the risk until it lends the proceeds.
Although most MTN issuers converted their exposure in inflation-linked issues to plain-vanilla fixed or floating-rate debt, French railway agency Reseau Ferre De France decided to retain the exposure. Pierre Fourrier, head of finance in Paris, said it carried out an asset and liability management study which showed the agency would benefit from diversifying its liabilities by keeping some debt referenced to inflation. Fourrier said this will never account for a major funding source, but it is looking at tapping the inflation-linked market for another EUR200 million later this year.
Italian retail investors have been the main buyers of these notes, which explains Unicredit Banca Mobiliare's position at number three in the Q1 dealer league table. Veronique Dosdat, in the banking and relationship group at Renault Credit International SA Banque in Paris, said it chose UBM because the bank approached the finance arm for Renault and Nissan cars with retail investors in place for an inflation-linked deal.