It is all change at the top for IPAs. Relentless consolidation has put Deutsche Bank at the forefront of the IPA business. But its position is far from secure. Tough competition has meant that acquisitions are not over. But it is not just the smaller houses that are under attack. The sector believes that this time one of the bigger fish could leave the market, and that it is Bank of New York reeling them in. Jeffrey Volk, managing director, agency and trust services at Citibank, which has dominated the IPA market for the last 15 years, says: "There is constant speculation about further consolidation within the IPA market and it would not be a total surprise if one of the major IPA players were to be acquired." But he is quick to divert speculation away from Citibank. He says: "We have clearly demonstrated our commitment to this market following the successful acquisition of JP Morgan's IPA business." And some market players are speculating that Deutsche Bank is the favourite to go, although the bank was unable to comment on the circulating rumours. But Graham Cox, global product manager for programme debt at Deutsche Bank, and chairman of the IPA association, does not dismiss the possibility of future acquisitions elsewhere in the market. He says: "There is bound to be more consolidation. But you have to wonder how many more mergers there can be before the Monopolies Commission gets hold of it. However I think it is safe to say that we will not be seeing any new players in the market." Not surprisingly Cox is more interested in talking about Deutsche Bank's success. After purchasing Bankers Trust in 1999 Deutsche Bank shot to the top of MTNWeek's IPA programme league table last year. It recorded a 35% share of new Euro-MTN programmes signed in 2000, according to MTNWare. And Cox believes it is the Deutsche Bank name that has helped achieve this. He says: "We have had a great year. Our market share has grown tremendously leaving us miles ahead of the competition. This is down to a combination of things: the fact that we are the preferred choice and the fact that the Deutsche Bank name has a lot more clout than Bankers Trust did." But despite the market's domination by Deutsche Bank, Citibank, and to a lesser extent Chase Manhattan, it seems there is still room for smaller players. Bank One was the appointed IPA for just two programmes last year but Brian Welsh, securities product manager at Bank One, is confident that there is a demand for their type of business. He says: "There is definitely room for small players in the market. Lower volumes give the agent the ability to offer a more tailored service. Our main priority at the moment is to create an awareness of our capabilities in the sector and to ensure that issuers and arrangers think of Bank One when they are bringing new programmes to the market." Volk, at Citibank, which is top of MTNWeek's IPA issuance league table, does not share his confidence and is certain that only the bigger agents will survive. He says: "At Citibank we transact in every major market but smaller IPAs, without an appropriate infrastructure, may struggle to offer global solutions to clients." Yet there were 20 agencies active in the MTN market last year. And only seven were appointed to more than three programmes. Welsh, at Bank One, believes that the abundance of less active agents will cause further consolidation in the market, and that a merger for Bank One is not out of the question. He says: "There are still quite a few small IPAs in the market, so we may still see some consolidation this year. At Bank One we would consider any business opportunity that would complement our present capabilities." This is good news for BNP Paribas. It was appointed to 13 MTN programmes last year, according to MTNWare, and the bank is keen to build on this in 2001. Gary Webb, global corporate trust at BNP Paribas, says: "Citibank and Deutsche both have a longer history in the business and have grown through acquisition. But we have begun to push hard on the MTN side in the past few years. We are looking at the option of expanding ourselves and are looking closely at other providers in the business." In its determination to rattle the big names, BNP Paribas now offers a wide range of services for issuers. Webb says: "Three months ago we set up our UK trustee company and hired Sally Easton, the current vice chairman of the IPA association. We think that if you can offer a full range of services then you are an interesting product. Some of our competitors believe that they can proceed in the structured market without the trustee service. But people are looking for a one-stop shop. Very rarely do you find an issuer that wants to use a lot of parties for one transaction. That could be a nightmare." The IPA market has become fiercely competitive and Webb maintains that offering a complete service is very important way to secure success in the area. A lot of big programmes have already been signed. And, as IPAs are rarely removed from programmes, this represents lost business. He says: "If BNP Paribas is the arranger then we obviously leverage our position. We also sometimes call issuers who have programmes to see if they are satisfied. During acquisitions some issuers are reluctant to work with particular IPAs. But it is very rare for IPAs to get removed from a programme. There is obviously a legal cost attached to changing an IPA. So it is a case of how bad do you have to be before it is really necessary?" Hilton is one issuer that swapped its IPA. Its previous agent, Barclays Capital, left the IPA market after it was acquired by Bank of New York, and Hilton took this opportunity to appoint Deutsche Bank. Vinod Parmar, assistant group treasurer at Hilton, says: "When choosing an IPA the important thing for us is the relationship we have with them, and their information systems. We used Barclays because we had a very good relationship with them. But when they left the market we thought the time was right to find a new agent." But Parmar does not have much time for IPAs. He says: "Cost is not a major feature when choosing an agent. In terms of price, things are pretty flat on the IPA side. The relationship you have with them is more important. They are pretty much behind the scenes and I suppose they save the issuer a lot of work. But I must admit IPAs are not something that is given a lot of thought." It is this attitude that the industry is eager to change. Fees in the sector have fallen steadily over the years but IPAs are beginning to say that enough is enough. Cox, at Deutsche Bank, is positive that issuers are starting to realize the value of IPAs and that there will be a gradual rise in fees to reflect this. He says: "The pressures on fees will remain but there is enormous long-term value that issuers get from an agent, such as the intra-day credit risk, and I think we may see agents beginning to push back on fees. The good clients recognize the value of our service but the problem comes when you are setting up a new programme with a new issuer who has not experienced the valuable service an IPA provides." But Welsh, at Bank One, is not so confident. He says: "Reductions in fees have happened over a fairly significant period of time and once fees have gone down it's very difficult to introduce them again in the future." Yet Welsh has not given up. He hopes the large number of structured trades that are entering the market, and the complexity they bring, will help to raise the profile of IPAs. He says: "Asset-backed products are very much the future of the market. These transactions generate a diverse revenue stream for the agent. We have seen significantly more structured trades, and arrangers and issuers now need to appoint an IPA with the expertise to match." Other market players agree that asset-backed products are an important feature but Cox, at Deutsche Bank, does not see them as new to the market. He believes that another product has strengthened the IPA hand. He says: "Something that we have seen develop recently has been more of a move towards equity products and this is changing the role of the agent. We are now providing more of a value-added service, moving away from that of pure debt into an equity-based role." But some are far from happy with the market's current infrastructure. They think that it is still too inefficient. Cox says: "In Europe we have not been able to get the straight-through process. We have not gained the efficiencies that are apparent in the US. The challenge for us is how we can make more efficient models. But this is a slow process given that there are a lot more variants in the MTN market - MTNs will never be like CPs." For commercial paper, same-day settlement is now a real possibility and new technology such as Capital Net's Issuelink has made this possible. But on the MTN side things are different and some blame the division between the two major clearing houses. Webb, at BNP Paribas, says: "Settlement systems need to sort out their act. Last year I would have said that a merger between Clearstream and Euroclear would have been sooner rather than later. But now they are both looking at the prospect of the equities market and it seems as if it is viable for them to follow their own projects." Welsh, at Bank One, agrees: "Same day settlement? No. At least not at once. Bank One already provides same-day settlement for short-term money market instruments. But the MTN market does not currently lend itself well to same-day settlement. The current process within the ICSDs needs to be expanded and become more efficient before it is extended to the more complex MTN product." A merger between the two clearing houses has been rumoured for a long time and although Webb, at BNP Paribas, is positive it will cause a stir in the market, he concludes that it will be a different kind of merger that lights up the market in 2001. He says: "IPAs are waiting for the big bang on the settlement front but this is not going to happen overnight. Europe is still fragmented both legally and culturally. In the future, IPAs will see a lot of outsourcing of activities. They will take on a broader role and smaller players will leave the market. In our business we often hear of exits and acquisitions. And the big news for 2001 could be the acquisition of a significant player." And if the rumours are to be believed, Bank of New York will be the acquirer.
September 14, 2001
