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Axa completed the largest subordinated issue yet from the insurance sector on Monday, following up a $900m 30 year offering launched the previous Friday with issues in euros and sterling.

A well-known issuer, based behind Liverpool Street station in the heart of London, has raised more debt than European Investment Bank or even World Bank. Tucked away in their unassuming offices in Bavaria House, the men from Bayerische Landesbank (Balaba) like to conduct their business away from the public gaze. And though many landesbanks issue yen, not one has issued quite as much or in such a variety of structures. It has been busy structuring its way into the yen market and isn't keen on being disturbed, which is why it keeps its trading floor hidden away mysteriously at the back of the building. Balaba is the top German issuer of non-syndicated deals to date in 2000, according to MTNWare. It has issued $9.83 billion off 143 trades so far this year, the majority of which are in yen. And it is at the forefront of the Euro-MTN market in other ways. It is one of the largest landesbanks, second only to Westdeutsche Landesbank. And Balaba has decided to run itself from two centres with two Euro-MTN programmes. One has a limit of $12 billion and issues out of London. The trades issued off this shelf are mainly small, non-syndicated, structured yen trades. The other programme's ceiling is euro30 billion ($27 billion) and issues out of Munich, Balaba's head office. It issues mainly syndicated public deals, which bolster the landesbank's issuance in the league tables. However the landesbank is better known for its structured private placements, which account for over 70% of its trades. Russell Williams, deputy head of capital markets at Balaba's London office, explains that London and the head office have different funding needs and strategies. He says: "Munich's focus is on head office funding needs and group-wide liquidity management, whereas London concentrates on opportunistic, structured issuance." Williams joined the bank in 1984 on the money markets and FX desk. He moved over to the MTN desk five years ago and remembers when the second programme was set up. He says: "We speak to Munich regularly. We want to avoid any potential for arbitrage between the two centres." But there is still a great deal of communication between the Munich head office and the London branch. Both issue daily off their Euro-MTN programmes, so they have to co-ordinate their operations. Klaus Wrobel is head of capital markets at Balaba's head office in Munich. He says: "We make sure we are posting the same levels and that there is no arbitrage. London uses its funds for its own operations and does not contribute to head office funding." This way of issuing takes a lot of pressure off Balaba's London branch because there is no urgency to raise funds for a particular asset. Unlike most banks which raise all their funds from one location, Balaba takes pride in the fact that the London branch is financially independent from its head office and is responsible for its own funding. John Gausepohl is Balaba's general manager of the structured issuance market. He joined the New York office in 1988, where he was head of trading. He then moved to the London branch in 1995. Gausepohl was previously head of capital markets at the Commonwealth Bank of Australia, between 1983 and 1988. Gausepohl points out that the way Balaba is funded from its regional branches is a great advantage. He says: "It allows us autonomy to exploit our in-depth knowledge of the local market and consequently gives us more freedom on both the asset and liability sides. Some other banks are starting to selectively revert back to regional autonomy." This means that trades can be agreed upon quickly, which is popular with dealers because the process of trading is smoother. Salomon Smith Barney (Salomon) is bookrunner off 13 trades for the London branch so far this year. Milon Jenssen, debt capital markets at the Frankfurt office of Salomon, explains what makes Balaba so easy to work with. He says: "Balaba is easily approachable over the phone: this makes them very quick and flexible to work with because if the structure is already known, then they don't require an indicative term sheet - this speeds things up a lot." Rolf Schafer, head of capital markets at Balaba, is responsible for assets as well as liability. Between 1986 and 1990 Schafer worked at Westdeutsche Landesbank and before that he was at NatWest in London. Schafer, who has been with Balaba since 1990, explains why the London branch can issue opportunistically. He says: "We only issue on demand and we only do private placements. The demand is 75% through our dealer group and 25% reverse enquiry. Opportunistic funding may be used to purchase assets for the London branch's investment book." Structures are really Balaba's strong point. It is open to nearly any structure that an investor requires. Schafer says that it makes a point of not doing any retail-targeted deals. He says: "Each issue is tailored to an individual investor. We have issued, in all, 1090 tranches with 98 different structures since the programme's inception in 1992." And Williams boasts: "There are a few structures that we cannot currently do, but not many." Balaba has a reputation in the market for its versatility with structures. The MTN issuers at Balaba are aware that this is crucial to the programme's success in the market. Gausepohl thinks that it is important to accommodate the customer and cover all the investor bases. He says: "We recognise that people want a quick response. We think it's important to be consistent with pricing levels and parameters. And in London, as a matter of policy, we bid consistently to buy back our paper when asked." This is certainly a policy that makes the bank popular with investors. And Balaba knows exactly which structures can appeal to its main investor base: Japanese institutional investors. Jenssen, at Salomon, says: "To satisfy their yield targets, investors look for reverse dual currency and power reverse dual-currency notes, with or without a Bermudan callable structure that works best for long-dated trades. A large portion of trades done for Balaba include both types in a broad range of variations." The vast majority of trades issued out of Balaba's London office are in yen - 78%, according to MTNWare. This is a clear indication of where the bank's investor base mainly lies. Its top dealers by volume of debt raised are Industrial Bank of Japan and Nomura. They have been bookrunners off $509.95 million-worth of non-syndicated trades out of London. This is another sure sign that the bank is selling most of its trades into Japan. Salomon, which has a strong presence in Japan, along with Daiwa SBCM Europe (Daiwa), have both issued the highest number of trades for Balaba. Each has been bookrunner off 13 issues in 2000, according to MTNWare. Balaba also has experience, which has given it staying power in the market and developed its reputation. Sam Amalou, debt origination at Daiwa, says: "Daiwa has worked with them in this market for over four years now, and over the years they have adapted to the market as new structures come along. They are quick to respond and can accept more structures than most other issuers." Balaba's quick response time has won it accolades from the bookrunners that do most of the bank's trades into Japan. Amalou adds: "What makes it easy for us is their quasi-sovereign status and flexibility to take on almost all types of products. Most business out of Japan is investor driven, and it's not always easy to find an issuer to accept structures designed for investors." The London branch of the bank has the edge over other issuers by allowing the investor to change details of a trade even after a deal is all but closed. Schafer explains: "We are slightly unusual in that we normally give the investor the option to increase the deal before the issue date, so long as we have four days between finalising the amount and the payment date to complete the paper work. We feel it is important that we don't change our targets too frequently so that dealers have a good idea of our posting levels when they are in the early stages of putting a deal together." This has made Balaba, which is 50% owned by the state of Bavaria and 50% owned by the Bavarian savings bank association, a popular issuer in Japan. Jenssen, at Salomon, explains that the landesbank has developed a good reputation there. He says: "Japanese investors have a very clear idea of what they want. But they are also looking for a yield pick-up, which is not easy with triple-A rated issuers as their traditionally favoured issuer group. Many Japanese investors see Balaba in the same category as limited-credit-risk issuers such as Kreditanstalt fur Wiederaufbau and Deutsche Ausgleichsbank." Amalou, at Daiwa, agrees. He says: "From our perspective, it is not so much that they have a better credit or that they are easier to work with, but that their name is familiar in Japan, so investors know the story. In some instances, they have a slight advantage in yen because they take proceeds in that currency." There is just one issue threatening the landesbank sector. The EU has decided to investigate the guarantee system of all landesbanks and the way their debt might be grandfathered if those guarantees were to be axed. Consequently Standard & Poor's placed Balaba's triple-A rating on outlook negative last December (see page 4). Wrobel explains why this sent a certain amount of shock though the German banking sector and why the EU's plans to remove the landesbanks' special guarantees has met with fierce criticism. He says: "Public banks play a very important role in Germany and the landesbanks have an important position in the German banking sector." Some dealers admit that this could pose a potential threat, but this is countered by Balaba's strong name recognition. Amalou, at Daiwa, says: "The negative outlook of the landesbank's credit rating might be a problem for some investors, but Balaba is still rated triple-A. And in Japan credit perception is still unaffected and familiarity with a name is important." Balaba has suffered a quiet period in 2000. So far this year its issuance is down to $1.49 billion off 108 trades, according to MTNWare, compared with $2.02 billion off 223 trades during the same period last year. But Williams claims that the threat to the guarantee system has had no effect on Balaba's issuance. He says: "The question about the future of the landesbank sector hasn't affected the business we do. Triple-A issuers are generally paying more than they used to. In line with our peers, we have been less active this year than last for a number of reasons. For example, at the beginning of the year there were a lot of short-term equity-linked notes for which investors were prepared to move down the credit spectrum, so triple-A rated issuers missed out." But with this threat seeming quite remote, the four-strong team in Bavaria House is left to get on with the day-to-day business of issuing large amounts of Euro-MTNs. They won't let the EU or rating agencies dampen their spirits. After all, they know that there is a lot of enjoyment to be had in the business. And Rolf Schafer speaks for all of them when he jokingly says: "Of course the most fun part of this job is making money."

Cassa di Risparmio di Genova e Imperia, known as Banca Carige, has overhauled its little-used Euro-MTN programme. It has doubled the issuing limit from euro1 billion ($895.4 million) to euro2 million and added 10 dealers to its dealer panel, doubling the number of dealers. The new dealers are Banca d'Intermediazione Mobilare, Barclays Capital, Bear Stearns, Caboto, Credit Suisse First Boston, Credit Agricole Indosuez, ING Barings/BBL, Mediobanca, Tokyo-Mitsubishi International and Unicredit Banca Mobiliare. Banca Carige has only issued one note since signing its programme in May 1999. The trade was a public euro300 million two-year FRN launched in October 1999.

Banco Itau of Brazil has returned to the market with a $100m 2001 bond, lead managed by Merrill Lynch. The deal was co-led by Banco Itau and BNP Paribas. The deal pays a 7.375% coupon on a 99.975 issue/reoffer price, and was issued by the bank's Cayman Islands subsidiary. Around 55%-60% of the deal was sold to the Brazilian banking sector, 25% to Merrill Lynch's retail network, and the rest to retail oriented banks, particularly in Switzerland.

The loan market is finally beginning to swing into action as the long anticipated bidding process for the sale of Seagram's wine and spirits business nears conclusion. After months of behind-the-scenes activity, this week saw some dramatic developments with Allied Domecq pulling out of the tussle on Tuesday.

The yen market just will not got to bed, and Bayerische Landesbank Girozentrale is lapping up the business. One of its many trades, which will continue to and through the New Year, is a 30-year power reverse dual currency note. The ¥500 million trade offers an initial coupon of 6% and was managed by Salomon Smith Barney. Russell Williams, deputy head of capital markets at the issuer, says: "Our involvement in Japan is purely a question of levels. We can get much better levels by doing lots of small trades than by doing one large deal somewhere else."

Bank Nederlandse Gemeenten has added itself as a dealer to its euro50 billion ($45.5 billion) debt issuance programme. The UBS Warburg arranged facility has over $31 billion outstanding.

BNP Paribas has plugged the last key gap in its debt syndicate team with the hire of Martin Egan, who is joining the firm as global head of high grade syndicate. He will report to Paul Hearn and Eric Dumas, BNP Paribas' co-heads of high grade credit, and will be responsible for syndicate desks in London, Paris, Zurich, New York, Tokyo and Hong Kong. Egan's move breaks a harmonious relationship with John Fleming, a duo that has run CSFB's London syndicate desk for seven and a half years.

UBS Warburg has been doing it for one year and BNP Paribas has just got started. These MTN houses are pushing out the boundaries of e-trading with their MTN sites, but online execution has yet to get off the ground. They are developing their sites mainly as a tool to speed up the exchange of detailed information. So how close are they to click-and-trade MTNs? BNP Paribas launched MTNMaster in October and it is the first system to tackle the thorny subject of structures. The site is divided into three sections. One section, called Project Monitor, gives libor levels on any structure. These libor levels are entered by BNP Paribas and show the structure and prices that investors want to buy. Issuers can browse this section to see what trades suit their needs. Daniel Cogoi, head of BNP Paribas' MTN desk, says: "Project Monitor shows the issuers all the live investor-driven enquiries for structured MTNs. We are not aware that there is any system that addresses this very important part of the market." But some dealers don't think that trading structures online is viable. Michael John Lytle, fixed income and debt capital markets e-commerce at Morgan Stanley Dean Witter (MSDW), says: "The structured process is very specialised and technology can't imitate what human beings do - there are too many variables." The section called Vanilla Indications gives live pricing for vanilla trades. Issuers enter their levels and only investors can browse the information. In the third section, Investor Opportunities, investors can see what amounts, maturities and prices issuers want. This will mainly focus on credit products and will be accompanied by advice from BNP Paribas on whether the trades are good value. Over 75 issuers have already requested passwords for the site, and BNP Paribas hopes to have 200 issuers subscribed to the site by the beginning of 2001. At the moment, issuers can enter their data directly onto MTNMaster, or they can send it as usual to the MTN desk, which will enter it for them. Even before the internet site, BNP Paribas had to enter the information into Excel or Access, but Cogoi plans to encourage issuers to enter their own data when the site is up and running. The system cuts out the first stage where investors call up BNP Paribas and ask what opportunities there are. It will also encourage reverse enquiry from investors. But it does not necessarily create transparency in the market because investors cannot see other investors' targets and issuers can't view the sections where other issuers display their levels. But Cogoi says: "We're not just displaying issuers' targets, we're processing information and therefore MTNMaster becomes an integral part of the daily process of matching issuers and investors." In light of this new competition, UBS Warburg is giving its own site a face-lift. The MTN platform, launched in October 1999, will be relaunched on November 30 with a redesigned front page giving market analysis and details of trades done that week. The breakdown of trades and market trends, along with the bank's own credit research and swaps levels will give investors useful market colour. Between 150 and 200 subscribed issuers and investors visit the site every month. Once UBS Warburg has entered the borrowers' funding targets, the system then automatically adds the basis swaps, interest rate swaps and credit-charging formulae to give live prices. All investors can see these live prices. But issuers have to e-mail or phone their levels to the dealer, who then enters the data onto the site. This is time-consuming for the dealer and Gavin Eddy, UBS Warburg's head of Euro-MTN trading, would like to see issuers take responsibility for entering their own levels. Shortly after launch, some issuers were asked to enter their data directly onto the site but they were reluctant to take on the extra chore in addition to the usual ways of posting levels. Eddy says: "We then developed technology to read borrowers e-mails, but it is a case of persuading them to put data in the format we require. There's a long way to go - the market certainly isn't ready for online trade execution for MTNs." Rabobank, one of UBS Warburg's clients, has used the system. An official at Rabobank's global liability management department says: "We don't use the full range of the website but it's very good for trading levels. It speeds up the process and has the most up to date prices." And some issuers are showing enthusiasm for online transparency. The US gic-backed issuers in particular are setting up their own systems. Jackson National Life has launched a site for dealers and investors, giving funding levels, issuance statistics, credit information for investors and financial statements. At the moment 25 dealers have access to the site, eight of which are named dealers on the MTN programme dealer panel. Another gic issuer, Pacific Life, also has its own MTN system. Other issuers meanwhile are reluctant to allow so much transparency into the market. UBS Warburg has about 400 issuers posting levels on its site, but several issuers were unwilling to openly display their levels. Eddy believes this is bad for the market. He says: "We've made the market more transparent and our business more efficient. It has to be that way to improve liquidity and increase volumes." But the debate continues as to whether the internet will be a successful trading medium. Both issuers and dealers are wary of letting computers replace relationships. Lytle, at MSDW, says: "A deal will often rest on half a basis point and with a machine there's no room for compromise." The human aspect of trading is important to issuers. The official at Rabobank says: "MTN issuance is very much a relationship thing - we have a good relationship with the UBS Warburg desk and that can't really be replaced, but the website adds to it." Rabobank said it would also use BNP Paribas' site when it is up and running. Tiina Lee, head of MTNs at Deutsche Bank, says: "An online trading system can only work in conjunction with a trading desk. The whole reason why investors come to the EMTN market is that they want a tailor-made product. It's unusual for investors to agree terms straight away - there's always some negotiation." Online execution of trades is the next goal. UBS Warburg is developing this capability on its MTN site. At the moment online execution is only possible through UBS Warburg's Ibol (investment banking online) system. So far this year six of its 312 non-syndicated, non self-led, MTN trades have been completed through the Ibol site. But investors aren't ready to let go of the dealers' apron strings and trade online. Another problem is that if each bank develops its own MTN site, issuers could be put off by the need to input their targets into dozens of dealer systems. This is a problem the market will have to address. One solution is for all banks to get together in a joint venture. But for now the banks are gearing up and getting themselves ready to compete in the online market. Even if they can't execute online now, their investment in technology and getting investors used to consulting online systems will put them in a strong position if online trading should come about in future. Cogoi admits that this is also important and he hopes that MTNMaster will assure BNP Paribas a seat around the table if there is any discussion about a joint MTN platform. Lytle, at MSDW, says: "Lots of useful information can be shared in an online system, but there is more to execution. A multi-dealer execution system is certainly a possibility." Lee, at Deutsche Bank, says: "In most other businesses people are hedging their bets and single-dealer trading sites are being set up as well as multi-dealer platforms. At the moment no one knows what will work best for MTNs. The only reality is that to do nothing is not an option."