Overview — Covid and the capital markets: Turning crisis into opportunity
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Overview — Covid and the capital markets: Turning crisis into opportunity

GlobalCapital Capital markets after the pandemic landscape shake up.jpg

The global pandemic has forced those working in finance to re-evaluate how they do their jobs — whether it be working more from home and not travelling as much on aeroplanes or helping to foster more diverse and ESG-conscious workplaces. Some banks have also seen the crisis as an agent of change, to accelerate growth plans or implement new strategies. Eighteen months on from the beginning of the crisis, GlobalCapital looks at how successful they’ve been and whether they can make it stick.

“Never let a good crisis go to waste.” It’s a phrase that has been attributed to many, including World War II British prime minister Winston Churchill and Rahm Emanuel, the former mayor of Chicago and US President Obama’s chief of staff.

Sir Winston Churchill British wartime leader. 1940's image.
Copyright from the archives of Press Portrait Service (Formerly Press Portrait Bureau)

It’s also a phrase that has been used increasingly often in recent years, especially since the global financial crisis began in 2007. Now, the more optimistic in capital markets hope that Covid-19 will turn out to be the right-hand bookend to what has felt at times like 14 years of non-stop crises.

For banks, like any other businesses, crises can present gilt-edged, once in a lifetime opportunities for them and their clients — just as they can also threaten the very existence of fabled institutions and markets.

The 2007-8 crisis was mostly a banking crisis, with the infamous demise of Lehman Brothers. But it was also an opportunity for Barclays and Nomura, which both swept up parts of Lehman, and for JP Morgan, which swallowed the tottering Bear Stearns and Washington Mutual.

Although JP Morgan chief Jamie Dimon has since admitted he regrets buying Bear (his firm had to pay nearly $19bn in fines and settlements after the crisis, much of it related to Bear and WaMu), his bank now sits atop global banking. Fourteen years on, JP Morgan heads, or very nearly, all the key global investment banking and capital markets league tables, by volume and fees.

2020 opportunity

The coronavirus pandemic is a very different crisis: a health emergency that quickly became an economic one too.

For many banks, though, it was a chance to finally redeem themselves and be part of the solution, having been blamed as the cause of the 2008 crisis.

Banks were the essential vessels through which governments and central banks pumped emergency liquidity into the economy. Demand for capital was so high, often through the rapid drawing down of revolving credit facilities, that many participants felt there were more deals than banks to do them.

Some firms took the chance to accelerate growth plans, hatch new ones and build businesses and client relationships faster than would otherwise have been possible. For some it was a rare opportunity to win back market share from the previously omnipotent US banks.

Understandably, since it is a health crisis, banks are very careful when describing their 2020 strategies. “There’s an enormous and important difference between opportunism and seeing an opportunity,” as one banker says, keen to emphasise the sensitivity that now courses through his institution amid the devastation that Covid-19 continues to wreak across society, and following last year’s terrible death rates. “One is akin to war profiteering, the other is being a good businessman.”

As another says: “The way I see it is that if we are aggressively growing our business in a sustainable way in the middle of a pandemic — even potentially at the cost of rivals losing out — then we are supporting the economy and our clients at precisely the right time; when it is most needed.”

Stand up

So who did step up and where — and has it been worth it? Given that balance sheet was what clients really needed at the peak of the crisis last year, the syndicated loan market is a good place to start.


BNP Paribas was the number one bookrunner of European investment grade syndicated loans in 2019 with a total of almost €39bn of league table credit, according to Dealogic, and a market share of 6%. JP Morgan was the only US house in the top five (€27.5bn, 4.2%), though Bank of America was sixth (€24bn and 3.7%).

By the end of 2020 BNPP had extended its lead in spectacular fashion, having bookrun nearly €70bn of deals with a staggering market share of 10.7%. JP Morgan had stepped up with €36bn but BofA had fallen to 18th with €8bn and a market share of 1.3%.

With an almost doubling of market share and lending, it should come as no surprise to learn that BNPP’s 2020 loan market performance was deliberate. In fact it had done it before, during the 2008 financial crisis and subsequent European sovereign debt crisis.

“In the previous crisis we made a very deliberate decision to extend our balance sheet to support our clients — and that resulted in us emerging from that crisis an even more meaningful DCM player, with a greater number of corporate clients,” says Mark Lynagh, co-head of debt capital markets at BNP Paribas.

This time, according to Lynagh, there was a variation on the theme: BNPP spied opportunities beyond debt capital markets. “Last year we were even more agile and holistic in our response,” he says. “While balance sheet in the short term was of course very important again, we were well set up to provide thoughtful capital structure advice.”

He goes on to explain: “The unfortunate situation last year played into our strategy; it accelerated what we were seeking to achieve — success from a co-ordinated approach between products and teams that enable us to offer our clients seamless (and neutral) advice across the capital structure, and notably a broader equity dialogue.”

Head start

One bank that was in some ways arguably primed to respond to the pandemic, due in part to its role as a bridge between Asia and Europe, was HSBC.

“We saw this in Asia before it hit Europe,” said Adam Bothamley, global co-head of DCM at HSBC. “So we had already gone through a lot of the contingency planning in Hong Kong, for example, where we had to get everyone set up at home and make sure everything was working properly. We went very early from a European and US perspective as a result.”

Besides sending bankers home and setting them up with the necessary technology, on a strategic level HSBC’s response to the pandemic was to increase its focus on its core clients — something it had already been doing as part of a restructuring exercise but which was given added impetus by the crisis.

Spanish steps

Another bank that accelerated its plans was Santander. In 2019 it sat in 14th place in European IG syndicated loans, having led €15bn with a market share of 2.4%.

By the end of 2020, it had moved up to seventh with €25bn, a 4% share, having been as high as second, behind BNPP, in underwritten lending to large companies at the height of the crisis — somewhere it had never been before.

Like BNPP’s, it was an intentional move. “The reason we did that last year was that our ambition was to grow and deepen the relationships with our clients — and this remains our ambition,” says Conor Hennebry, global head of DCM and European head of syndicated loans. “Balance sheet is a good way to start that off, although for Santander we actually started doing it about 10-12 years ago. The strategy of lending more is not new, it’s just that we ramped it up last year.”

But balance sheet, Henebry says, can only get you so far. “If you are trying to build a business with just balance sheet there is a limit to how far you can go. We are at a stage of our evolution that we want to do more value-added business; hence you see us growing in debt capital markets; hence why even last year the most important deals we did in the loans world we underwrote — not just lent. So we underwrote deals for Shell, Daimler, Anglo American, etc. Just using the balance sheet is a bit of a trap. You cannot grow without balance sheet — we are a bank after all — but you can’t just be about balance sheet.”

Has the plan worked for Santander? To be fair, 18 months from the peak of the crisis is probably still too early to tell for sure. But Hennebry believes it has helped his business. “It’s always hard to measure but I go to the meetings with clients and our credibility with them has changed a lot for the better,” he says. “We are involved with clients right now where maybe our support last year changed their perception of Santander.”

Some of the deals Santander is working on now do not need balance sheet.

Although it is early days, the signs look encouraging for Santander. In European investment grade corporate bonds, it finished 15th in 2019 with a market share of 3%, 12th in 2020 with 3.2% and in the 2021 table up to late September, it is ninth with a 3.5% market share.


Making it stick

Whether banks like Santander can make it stick is the big question. In 2020, many corporate clients were desperate, and banks were thinly stretched. Firms with the capital and will to expand could take advantage.

But the level of competition among banks for capital markets deals has returned to normal.

“Last year some firms retreated to their home markets to support their domestic clients cope with the pandemic — we definitely noticed some US and UK banks doing that, as well as lower tier European banks,” says a senior capital markets banker. “But that’s all changed. The aggression to win deals is very high at the moment — to some extent we are back to normal there. Last year there were perhaps more deals than there were banks to do them. Now we are back to a highly competitive position.”

Banks that have made progress in the last 18 months will have to keep up their increased lending appetite if they are to continue progressing in other, more lucrative areas of capital markets and investment banking.

The 2021 year to date loan league table shows Santander slightly bettering its 2020 performance, reaching sixth place.

But some of the biggest gainers are banks that did not shine in 2020. In Dealogic’s official loan league table, as of late September, Société Générale and Bank of America had vaulted past BNPP to take the top two spots, while Morgan Stanley was fourth.

Last year they had been fifth, sixth and 33rd.

Their rise is mostly due to one deal — Vonovia’s €19bn takeover of Deutsche Wohnen.

In fact, because the takeover has been complex, the three banks have underwritten two jumbo loans for it — but even taking out the second, smaller loan, which replaced the original €23bn financing, SG is top, BofA third and Morgan Stanley eighth.

Bond business has already followed — even before the acquisition closed, Vonovia issued €4bn in June and €5bn in August, then the biggest euro corporate bond of the year. BofA, Morgan Stanley and SG had the credits both times.

Skills to impress

Making a capital markets business thrive is not a one way street — you lend, you get deals. As BNPP, Santander and all other ambitious banks know, the lending relationship just gets your foot in the door. Once in the room, you need the skills to impress. When it comes to the market share-defining big M&A deals, close advisory relationships are the most telling factor.

Certainty of execution also rises in importance during a crisis, and in response to the initial shock of the pandemic, bankers say there was a “flight to quality” for this reason, as clients became more selective over the firms to which they entrusted their emergency fundraising.

Since then, as conditions have reverted to something approaching normality, there is a sense that that selectiveness has rolled back somewhat, though it rears its head again during periods and in markets where execution becomes more difficult.

“Since the peak crisis months, we've had a relatively long period of ‘easy’ market conditions, with the ECB buying significant proportions of eligible corporate deals, for example,” says Bothamley at HSBC. “So markets have been calmer, which means banks are more confident and borrowers are more relaxed — the fear that we saw 18 months ago that drove issuers to rely more heavily on the  biggest capital markets banks has dissipated.  

“Having said that, volatility still exists at certain points and in some markets, as we have seen in recent weeks. In such periods, having global visibility and cross-market presence becomes incredibly important in order to best advise clients on execution.”

The banks that have scrambled up during the crisis now need to build their expertise and teams in the high value products, if they are to achieve a lasting shake-up in the investment banking pecking order.


Toby Fildes
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