All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
CommentP&M Notebook

P&M Notebook: haves and have-nots

Europe’s banks seem to be increasingly split into the distressed and the merely dull, with investors unwilling to give much credence to either group.

In the former camp, we have Credit Suisse and Deutsche Bank, of course, fresh from their US Department of Justice settlements, firmly in the loss-making camp (CS reports on Wednesday), but, one hopes, ready to turn a corner.

UniCredit is the star of the show this quarter, though, with a provision, a loss, and a capital raising that dwarfs any of the other bank rescue plans (and, indeed, a similar plan to rescue UniCredit three years ago).

With 14,000 job cuts, a €13bn rights issue, €13.2bn of write-downs, and assailed on all sides by the costs of supporting its Italian peers, the bank looks to be in an unenviable position.

But, amazingly enough, the underlying business doesn’t look to have suffered unduly in the turmoil. UniCredit doesn’t depend on a capital-hungry markets unit with flighty, headline-obsessed counterparties to drive revenues, and can mostly get on with the business of lending to corporates in its home markets, which include fast-growing CEE countries, and skimming a little off the top in the form of investment banking business.

The bank claims, rather hubristically, to top the tables in EMEA euro-denominated bonds and European sponsor-related acquisition finance but this relies on counting number of deals, rather than volumes, and therefore sits as a testament to UniCredit’s ability to upgrade its medium-sized corporate banking clients into capital markets customers. Indeed, it announced a round of promotions in its regional ECM and sponsors business last week, naming, among others, co-heads of Italian ECM, who will no doubt be relishing the chance to guide the mothership’s rights issue through the market in the month ahead.

While investors are cutting the have-nots some slack, the haves are getting beaten up. Institutions like BNP Paribas, or Sociéte Générale, or even HSBC (yet to report) have been grinding away, cutting costs, trimming business lines, piling up capital, and paying off the fines doled out for laissez faire attitudes to US sanctions and other rules.

But investors want fireworks. BNPP admitted last week it wasn’t going for a target much above 10% return on equity, even by 2020, and HSBC is likely in the same boat. The shares promptly slumped — though you’d think a dose of caution about the future revenue and capital environment for investment banks was merited.

Nonetheless, perhaps, in investment banking at least, it is the moment for the commercial banks to shine, and finally make the leap to being Europe’s homegrown bulge bracket. With Credit Suisse and Deutsche still deep in strategic turmoil, and UBS picking its niches with care, judicious splashing of cash in corporate finance really could see the likes of BNPP and HSBC climb up the league tables this time around.

That’s the hope, anyway — more capital and more hiring in corporate finance is supposed to win BNPP a few places in the ECM league table, as well as a permanent seat among the top fixed income trading houses. HSBC’s transformation started roughly this time last year — and we’ll see next week whether it has worked.

But corporate finance is a lumpy business, and no lump is larger than the mandate for Saudi Aramco’s IPO. The superlatives are well trodden — largest ever, biggest ever fee event, larger than whatever collection of other companies you choose, large enough to bend markets around it.

Moelis, it seemed last week, was in pole position to win on the back of it, despite snarky scepticism from some of their peers that emerging markets-state owned oil privatisations weren’t really their thing.

But the reports were wrong — Moelis was not the sole adviser, nor even the sole independent. Instead, five banks are expected to win top line roles, with two of them independent boutiques. Moelis is therefore likely to be joined by Evercore or Rothschild, when the mandate is formally awarded this week.

Aramco is also set to hand mandates to two bulge bracket firms, with HSBC and JP Morgan named by bankers away from either institution. That looks thoroughly plausible. HSBC was on the top line for Aramco’s local currency sukuk, and for Kingdom of Saudi Arabia’s bond market debut, while JP Morgan is, well... by some measures, the best investment bank in the world (and, like HSBC, has a long line of top Saudi mandates to prove it).

The five bank line-up will then be rounded out by a local bank, but GlobalCapital, sadly, is not as entrenched in the jockeying for position that’s undoubtedly going on for prominence on the Tadawul. One could, however, note that Riyadh Capital was joint lead with HSBC Saudi Arabia on Aramco’s recent local currency sukuk….

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree