From his new vantage point as co-head of EMEA capital markets at Barclays, Pete Mason is in a position to survey the product landscape across equity, debt and risk solutions. But the bank is looking to create an environment where junior bankers can do so as well, amid a renewed effort to leave silos in the past.
Mason’s own speciality for many years has been FIG debt capital markets, though he has had oversight of an equity capital markets business line before, as co-head of EMEA FIG banking from 2015 until 2019, when he became head of DCM EMEA.
He took up his new title as co-head of capital markets EMEA at the end of July and runs the team jointly with Tom Johnson, who was previously head of ECM in the region.
As he gets to grips with his new responsibilities, Mason has been keeping a keen eye on developments across the capital markets, including the new rules that will allow special purpose acquisition companies (Spacs) to be listed on the London Stock Exchange.
Given his client base of financial institutions, he has also been carefully following the European Central Bank’s policies on dividends and share buy-backs and their likely implications for banks’ capital structures.
But he now has responsibility for a bigger team than before, and in this role he has been charged with instilling a multi-product mindset in everyone from junior bankers up. In this exclusive interview with GlobalCapital, he explains how Barclays aims to achieve this goal by allowing greater rotation within the ranks, and gives his view on what the second half of the year has in store for FIG, including a surge in "interesting projects".
GC: Could you tell us a little bit about the context for this round of promotions?
Pete Mason: The capital markets, across debt and equity, have been through a really strong period since the central bank intervention in response to the pandemic, as everyone reached for the capital markets to shore up balance sheets or term out debt profiles at attractive levels.
On the investment grade debt capital market side, two of our best three quarters of all time have come in the last 18 months. High yield and leveraged loan volumes so far this year have exceeded the full years of the last three years.
On the ECM side, after the markets froze in Q1 of last year, many corporates have reached for rights issues or placings to bolster their balance sheets in light of the pandemic. And given the spill-over effects of QE, we've seen equity market valuations close to all-time highs, and that's meant opportunistic equity and equity-linked deals have come to the fore. Add to all of this the Spac phenomenon and the IPO market strength and you have a once-in-a-decade ECM opportunity.
Finally, our risk solutions group has benefitted from an uptick in events, including M&A, driving alpha in their hedging activities.
In summary, all teams of the capital markets group at Barclays and across the street have done really well since the pandemic.
GlobalCapital: With your stepping up to be co-head of capital markets in EMEA, how much of your time now is going to be taken up with management? Are you still going to be involved in a hands-on way with deals?
We still very much have a player-manager mentality at Barclays. I still have my FIG clients, from the days when I co-ran the FIG group at Barclays, and I will continue to stay close to them. Tom is one of the leading originators in the EMEA IPO market and will maintain his relationships in that space. Bankers like us live for deals and so we're still going to be driving origination at Barclays.
But yes, we'll have a wider remit. And we'll be setting out a growth strategy for the wider team across EMEA capital markets. What the new structure offers our team is the ability to widen their skill sets. We're going to foster more rotation among the capital markets junior talent, and among our senior originators we’ll be encouraging them to adopt a client solutions mentality.
A lot of investment banks can be siloed and bankers can push their product, be that DCM or ECM or levfin. We benefit from an incredibly strong collaborative culture at Barclays but we want to accelerate the mindset change and have our capital markets originators out there talking to clients about solutions across the capital markets. These multi-product solutions should be across the capital structure, incorporating hedging and equity solutions into the client conversation, whether in the sub-investment grade or the investment grade space.
We want to use this change of structure and these new leadership roles to foster this multi-product solutions mentality and ultimately, that's got to be a positive for the team, their skills and experiences.
You've clearly been paying attention to what's been going on in ECM as you as you prepare for your expanded role. What do you think about the new rules for listings in London that might allow Spacs to take place there? Some people have suggested that the FCA may have missed the bus.
I think the listings changes are positive. Given Barclays’ position in the UK capital markets, we've been consulted quite heavily on them and have had input into the process via agencies such as UK Finance and AFME. We've also had direct conversations with the FCA and HMT.
While there has undoubtedly been a wave of Spac activity already in the last 12 months, there will be more similar activity to come in the years ahead, for which these rule changes are well designed. What we’re seeing from UK policymakers is that they're showing, in the post-Brexit world, that they're trying to build back better when it comes to the UK capital markets. We want a world-class financing centre to remain in London and we need to stay competitive versus the other big capital centres like New York, Singapore and Hong Kong. I believe these rule changes are very much part of that ambition coming out of Westminster.
For me the key question is how we make the City of London as competitive, commercial and flexible as it can be for the go forward, without tearing up the rulebooks and diluting the rigour with which people raise their capital here in London.
Do you think that there are going to be any changes on the debt side? One of the perennial questions is whether you can have a retail bond market that actually works.
We at Barclays would love to see a viable retail bond market in the UK. When the ORB market [London Stock Exchange Order Book for Retail Bonds] was being established, between 2010 and 2014, we were right at the forefront of that modest wave of issuance. We still feel it is quite odd that a retail investor can own the shares of National Grid, but you can't own a senior bond in National Grid.
But to generate more interest in this space, we need clarification and indeed a re-orientation of UK PRIIPS and UK MIFIR product governance to encourage participation of retail investors in public bond issuance.
My concern remains that without access to safe, straightforward public bonds, retail investors find themselves drawn to riskier, less regulated options such as mini bonds, and we have seen a few disasters in that area in recent years.
And you're still very tuned in to the FIG DCM market. What do you expect the second half of the year, after summer, to look like?
FIG DCM volumes in EMEA have been relatively disappointing since the crisis. That's because of the TLTRO scheme in Europe and the TFSME scheme here in the UK. Central banks are offering European banks super-cheap financing, so they're not coming to the capital markets as much to raise money in senior, covered or MREL formats. That effect will wear off probably next year and into 2023. So we're still looking at lower volumes across FIG for the next 18 months, before we anticipate a renaissance in activity.
But what we are seeing near term is more interesting projects, and those projects are towards the lower end of the capital structure.
For example, since the ECB has come out and said that they will not extend the dividend restrictions on European banks beyond September, we're anticipating that banks will come and fill up their capital buckets with Tier 2 and AT1, as they look to retain strong total capital and tier 1 capital ratios while they resume dividend paying and in some instances introduce share buybacks. So we expect capital issuance volumes — Tier 2 and especially AT1 — to improve as we go towards year end, particularly as issuance conditions remain very strong.
We're also seeing quite a bit of interesting work in the FIG space around legacy capital instruments and Libor reform, such as contingent Libor exposures and getting those fixed for the new benchmarks through consent solicitations and other liability management exercises.
So lower volumes, but interesting projects around the capital side of the bank space.
On the insurance side, there were a lot of European insurers who came to the market last year to shore up their solvency capital ratios. By issuing Tier 3, Tier 2 or RT1 capital, that's a boost in your SCR ratio, the key solvency metric for insurers. And we saw that, particularly in Q2, when markets had recovered, insurers were issuing low coupon capital instruments given spreads had rallied enormously and underlying rates had plummeted.
This year, it's been quite quiet. Because the major players were bolstering their balance sheets through issuance in 2020, many are quite toppy on their rating agency leverage calculations. And so they are quite keen to stay away from the markets, let debt roll off and lower that leverage level over time.
We anticipate the volumes in the insurance space going forward to come from M&A situations and from the emerging players in the European life consolidation market.
