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Most Impressive Bank for Financial Institution Bonds — HSBC

The European bond market for financial institutions has swung away from liquidity and towards capital, while ESG is becoming an ever-more important theme. Successful lead managers have needed expertise across all these areas, as well as the global distribution capability to help issuers find opportunities wherever and whenever they arise, a recipe well-suited to HSBC.

 

 

One thing FIG issuers have had in abundance this year is liquidity, so funding programmes have been smaller than usual. It has also meant that issuers have been more focused on price and less on hitting the market at every opportunity, says Hugo Moore, head of frequent borrowers and covered bonds. 

“When you are only planning a handful of trades you want to make sure you fund at the best possible price. That has worked for us because we can take a global view and execute accordingly,” he says.

Meanwhile, the shift in the level of attention the ESG topic has received from investors and issuers has been nothing short of extraordinary, such that green and social bonds have become commonplace. The next frontier for FIG is sustainability-linked bonds (SLBs). 

HSBC worked as a bookrunner on the first ever SLB for a financial institution, for Berlin Hyp on April 13, and just a day later it was structuring advisor in the second ever deal, for China Construction Bank. The agenda-setting transactions provide a blueprint for the SLB asset class for banks, says Christoph Hittmair, global head of financial institutions DCM.

“Berlin Hyp ranks amongst the best-in-class green issuers and is very sophisticated when it comes to ESG. The KPI that they applied —carbon reduction across its entire loan portfolio — fits very well with their commercial property lending business. 

“CCB is more of a universal bank with a diversified loan portfolio and the KPI of the green asset ratio is a potential prototype for other many other banks. International banks are going to start reporting a green asset ratio so it will be a really useful KPI to use for sustainability-linked issuance in the future.”

ESG remains very important to the bank and Hittmair recounts HSBC’s 2021 financial institutions conference with pride. It brought together 30 female leaders from across the sector to present on key issues. “Diversity is such an important topic for the industry and we wanted to highlight the role that female executives are playing,” he says. “With over 400 registered participants, clients were obviously interested in the themes discussed but I think also appreciated the platform given to these leaders.”

One area in which HSBC has been particularly strong is the insurance sub-sector, where it has been consistently ranked at or very near the top. HSBC’s franchise dominated the insurance restricted tier one (RT1) market: the bank has been involved in structuring seven of the ten inaugural international euro RT1 transactions, a hotly contested and high profile segment of the market.

HSBC benefits from having experienced capital securities specialists within the team, and is able to mobilise its Asian distribution franchise alongside its European platform to meet the needs of issuers that don’t have the documentation for onshore US issuance but want to tap US dollars as well as euros. And when issuers, such as Allianz with its ground-breaking dual tranche RT1 debut in November 2020, want US distribution, HSBC is able to provide seamless global execution, across its Yankee, European and Asian distribution platforms.

“We have a very collegiate syndicate that can pass the baton from Asia to Europe to the US to get that best pricing,” says Mark Pearce, head of financial institutions syndicate.

The shift towards capital issuance has also played to HSBC’s strengths in structuring, liability management and capital advisory.

“We’re very keen to stay pragmatic and not to structure for the sake of it but to provide innovations that have genuine value for our clients,” says Nik Dhanani, global head of the strategic solutions group. He points to the introduction of pre-financing calls in capital instruments which are now commonly used in both insurance and bank capital instruments as something which HSBC pioneered as a bookrunner in 2019.

Self-led transactions rarely receive plaudits but for solutions bankers like Dhanani they are an important demonstration of the bank’s capabilities. He is particularly proud of the series of liability management exercises which HSBC carried out in 2020 to re-profile the bank’s TLAC redemption profile that it had built up through the inaugural issuance in 2015 and 2016. “We designed an innovative blueprint for large-scale tender-and-new issue exercises.

“It highlighted an example of a new technique being used to create efficient outcomes for our clients,” he adds.

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