Don’t cut now, the only way for CEEMEA bond volumes is up
With all that has happened in the last few months in Russia and Ukraine, heads of DCM must be thinking about taking axes to their headcounts. But to start swinging them would be foolish when the market could still bounce back and annual refinancing volumes are about to rocket.
There were $70.7bn of CEEMEA bonds with a maturity in 2014, according to Dealogic data. But the refinancing pressures on issuers will grow fast. There are $82bn of CEEMEA bonds with a maturity date in 2015. That number grows to as high as $101.7bn by 2020.
Much of the refinancing business is in Russian bonds because that country accounted for the lion’s share of deals in the last few years. Though there is volatility now around Russia and Ukraine, most bankers are not expecting sanctions so harsh that all of this business comes to a halt.
Banks would have likely had to ramp up staffing to cover the business purely from a technical refinancing point of view, certainly on the debt capital markets front. Even if volumes comes in lower than projected, the headcount needed to manage it in the coming few years is probably not much lower than that which is already in place at the banks this year.
If there must be cuts, they should be mostly at senior level. The juniors on DCM desks typically have a focus on a particular country or region, but they are mostly jacks of all trades, masters of none. Though the Russian business took a hit this year, it has been partially compensated by an increase in volumes from other countries, meaning that total CEEMEA bond volumes for the year are only $25.4bn down on the $121.5bn done year-to-date last year.
It's worth bearing in mind that the second half of last year was much quieter than the first. DCM bankers covering Turkey and Africa for example are, somewhat smugly, saying that they are run off their feet. The juniors could at most banks be reallocated away from Russian coverage to other, busy areas.
The few senior DCM bankers that are paid more and have longstanding client relationships are a more tricky proposition. But with the juniors reallocated they will have more to do and the Russian issuers that still have access to the international debt capital markets will need more innovative funding tools and advice to make the most of what market access remains for them.
This has been a tough year for CEEMEA bonds. But all that has really been affected is the potential growth of the market, not an Armageddon-like destruction of what already exists. Those that make decisions with regards to staffing would do well to remember that in the coming few months.