The spate of mergers and acquisitions this year among investment banks has given some an invigorating shove in the back. No less than six of the top 10 dealers have decided to either merge with their equals or buy out their rivals. And the three main UK firms - Barclays Capital (Barclays), HSBC and Greenwich NatWest (NatWest) - have been taking the opportunity to expand too. But extra weight does not always mean extra clout. The sterling sector, once dominated by UK houses, is now open to all. And with the big US and Swiss banks continuing their domination of Euro-MTNs, the struggle to compete will only get harder for the British banks. Barclays is the only UK bank that has consistently been a top 10 dealer. Two months ago it hired Nabil Aboulzelof, formerly of ABN Amro and UBS Warburg, to head its Euro-MTN desk. He is pleased with his new role, saying: "Our management is more reactive than I've encountered before. They are aware of where they are and where they want to be. They will adapt to market change, and this wasn't the case at my previous employers." The bank is ranked eighth in the MTNWeek private placement league table. But with JP Morgan close behind, Aboulzelof knows that his biggest challenge will be maintaining this position. This is especially true because the sterling sector, which Barclays is highly active in, is no longer seen as the domain solely of UK banks. Barclays is the only UK dealer on Bank of Scotland's (BOS) $25 billion debt instrument programme. The Scottish bank has issued $1.39 billion-worth of sterling this year. Steve Lorimer, senior dealer at BOS, says: "It's not really the case that UK houses give the best access to the sterling sector anymore. Eight or nine years ago there was a tendency for UK issuers to go to UK houses, but then the banks started to move into the US market and the exclusivity disappeared." Bradford & Bingley Building Society has the three main UK banks as named dealers on its Euro-MTN programme, and has issued 12 sterling trades this year. But the issuer has used a bookrunner from the UK only four times, according to MTNWare. Paul Rowbotham, assistant treasurer at Bradford & Bingley, says the dealer panel was relationship-based, but that access to different markets is the priority. He says: "We are still primarily a sterling-based organization, but diversification has taken place. Our MTN dealership now tries to reflect a programme for all seasons." This has meant size and distribution capabilities have become the key points for winning dealerships. For smaller banks, such as Royal Bank of Scotland (RBS) and NatWest, mergers can help. Their merger earlier this year will not have had the effect of other similar deals however, because RBS did not have a specialist MTN desk. Rowbotham thinks liquidity is one of the main issues. He says: "An investor will look to a UK bank for placing his money because he expects strong sterling houses to have the best access to the sterling secondary market." This means smaller banks can use reverse enquiry business to stay competitive. Sixty-eight percent of the privately placed trades done by NatWest and RBS this year have been through reverse enquiry, according to MTNWare. This is not surprising, because the two banks have notched up just three dealerships between them in 2000. The US bank JP Morgan, voted best reverse enquiry dealer in MTNWeek's issuer survey in May, has done just 17% of its trades through reverse enquiry. But it has won 29 dealerships this year. HSBC has a different approach. It is seen by many as a UK bank having bought Midland Bank in 1992, but has only recently become a top 10 dealer according to MTNWeek criteria. Fergus Kiely, head of MTNs at HSBC, says: "There has to be some form of relationship and a common business interest between an issuer and HSBC. Some other banks tend to hunt for arrangership and dealership trophies and then stick them away in the cabinet to admire." HSBC has also just acquired Credit Commercial de France, and is hoping to exploit the euro market as a result. The majority of its private trades this year have been in dollar and sterling. But Rowbotham, at Bradford & Bingley, thinks UK banks may suffer if they veer too far from their own currency. He says: "Non-sterling flows are also readily available from UK banks, but you then start entering someone else's home territory. There is already a tension between the three main UK houses just for sterling, so moving outside this sector increases the competition even more." Nevertheless the UK houses are happy to branch out. Aboulzelof, at Barclays, says: "I'm impressed with where we are at the moment but we can still improve. The MTN desk in London is focused on Europe and Asia, especially on the yen reverse convertibles, but we are always looking at different opportunities." And Kiely, at HSBC, is keen to shrug off the notion that he is part of a UK bank. He says: "HSBC is a global bank and because of this we're able to access the investors that are best for our borrowers." But issuers are not concerned with where their dealers come from. Rowbotham, at Bradford & Bingley, says: "It comes down to the investment bank, not their nationality. Good secondary market behaviour is what the investor requires, with the least necessary payment possible."
October 13, 2000
