NatWest Markets, part of NatWest Group, has achieved dominant overall market share in sterling for financial institutions, while its breadth of activity has given it a leading role in more complex products that require closer engagement with the buy-side, such as acquisition finance, Libor transition and innovative liability management exercises.
Large fund inflows have supported the market. Assets under management in sterling investment grade funds have risen 162% since 2015, according to the bank, motivating borrowers to step in.
“Global investment managers are now very focused on diversification across currency as a response to what have been pretty aggressive policy actions from central banks worldwide,” says Chris Agathangelou, head of flow credit syndicate. “Coupled with the expansion of the investor base, it is making the market much more resilient and one that has started to offer opportunities for non-UK issuers as well.”
FIG bond supply in 2020 has fallen with banks receiving cheap liquidity from central bank Covid-19 response facilities.
Capital issuance has remained strong while liability management has also been an important feature of the market as issuers manage instruments coming to the end of their regulatory lives. Coventry Building Society started the trend in mid-2019 with the first tender of a Capital Requirements Regulation-compliant additional tier one ahead of its first call date. Tenders for Virgin Money and Yorkshire Building Society followed.
“All of those three deals were innovative,” says James Marriott, head of FI and SSA DCM and advisory. “All broke new ground and on all of them we were involved as dealer manager, as well as being bookrunner for the accompanying new issuance.”
The excess liquidity banks hold is leading some issuers to retire certain funding. Nationwide, for example, launched a tender across 11 of its covered bonds in euros and sterling. “It helped the society optimise its funding and liquidity position while providing liquidity to investors,” says Marriott.
Debut and returning issuers have been able to take size out of the sterling market all year, proving that it provides more reliable funding than in the past.
“As we went through the Covid environment it was interesting that the sterling market was the first to reopen subordinated supply post-lockdown,” says Agathangelou. “The resilient and strong investor support has really allowed the market to develop to the point where we can execute in what were pretty challenging markets.”
The landmark transaction was the £500m tier two in April for UK insurer Phoenix Group which completed the financing for its ReAssure acquisition. “The fact that we were able to go down the tier two route was something that was a really strong step forward for the sterling market.” Says Agathangelou. “It shows that depth is such that this market now is very viable for these types of acquisition finance.”
The Libor transition has also occupied the market. NatWest Markets has been involved in a dozen debut Sonia transactions while tackling legacy instruments has been a key focus.
NatWest Markets was on board when Santander became the first UK FI to publicly announce its intention to transition a master trust from Libor to Sonia, launching a consent solicitation on its Holmes platform. “This deal was important as it set the framework for subsequent transactions,” says Marriott.
ABS and covered bond issuers such as Nationwide and Skipton followed suit, achieving a unanimous vote from investors in favour of the consent solicitation.
“Libor is a key regulatory focus on which the Bank of England and FCA has made very clear their desire for banks to transition and these were three very successful transactions helping clients with their ambitions,” says Marriott.
In FIG, as in almost every other asset class, environmental, social and governance (ESG) factors command ever greater attention. Marriott says that the majority of investors include ESG in their decisions, either enacting explicit ESG investment.
