Most Awesome Bank for Financial Institutions Capital and Most Awesome Bank for Regulatory Advice for Financial Institutions – Morgan Stanley

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The past year has been a strategic and tactical minefield for bank executives, under pressure from governments to step up for borrowers during the Covid-19 crisis, with regulators seeking to ensure that they maintain strong capital buffers, and shareholders who need to hear a reassuring story. on future profits and distributions.

This played on the strengths of Morgan Stanley’s investment bank, where the board’s DNA runs deep, says Alexander Menounos, head of DCM EMEA and global co-head of IG syndicate. “We partner with the leading financial institution M&A advisory franchise for the EMEA region and the widely recognized leader in equity capital markets,” he said. “Fundamentally, we are driven by the need to understand our clients’ needs and to advise holistically on products, markets, capital, ratings, liability management and increasingly ESG topics. “

The restrictions placed on dividend distributions by regulators around the world to ensure that banks maintain sufficient capital to cope with the uncertain impact of the pandemic has been a crucial topic – and a topic that has been at the center of concern for consumers. Morgan Stanley issuing clients.

“It was not just a year of refinancing where the focus is generally on innovation around markets and distribution. We endured a complex and nuanced macroeconomic and regulatory context, with thoughtful advice on the overall strategy and communication with investors absolutely essential, as the banks sought to overcome the crisis and the various downturns, ”adds Menounos. “With the economic recovery, we are probably spending as much time with our colleagues at ECM talking about share buybacks as we are talking about subordinated debt and hybrid capital.

“It was a year that clients needed us the most, and it was the year that, as a franchise, we were able to provide the consistency of advice and coverage that clients needed.” , he said. “We have leveraged a true collaboration between capital markets and investment banking to provide holistic coverage, down to the board level. “

Menounos credits this consistency in how Morgan Stanley “delivers the business” to clients with its ability to provide advice in a truly unbiased and product independent manner.

“We have often found ourselves in a position where we advise our clients not to proceed with a proposed transaction due to residual regulatory uncertainty or a potential sub-optimal outcome in the context of a broader strategy” , he notes. “Thoughtful, impartial and attentive advice and communication to markets and investors has been the most important element of our added value. “

New perspective

Being able to provide advice on regulatory changes has been crucial during the pandemic as bank executives grapple with the fundamental challenges of crisis management.

“When you fight fires every day and the world around you changes, it’s easy to lose sight of the big picture and that’s where we come in and take a bigger perspective,” says Charles-Antoine Dozin, head of capital, ratings. and liability management advice.

“The dialogue that banks maintain with their supervisor does not distinguish between equity and debt, it is agnostic,” he adds. “Our ability to engage everyone across all functions – fixed income, trading, asset solutions, stocks, even mergers and acquisitions – to bring the whole business in a cohesive and consistent manner to clients in these challenging situations. regulatory dialogue sets us apart. “

He says that with investor sentiment in the banking industry that the world is returning to some sort of normalcy, banking supervisors will make case-by-case assessments of each institution.

“In a world where your ability to distribute dividends is limited, which is the reality we have faced and will continue to face in the coming quarters, you need to take a holistic view of your capital strategy .

“You just can’t make isolated decisions about each individual refinance – there has to be a holistic perspective on where your capital base is going. “

Menounos highlights Morgan Stanley’s work with issuers facing the market and the public reaction to the ECB’s decision to ban stock dividends at the start of the crisis, and investor concerns about the risk of contagion other discretionary payments such as AT1 coupons.

“As a company, it was important to support clients through the various developments in the ECB’s recommendation, by giving them advice that enabled them to navigate uncertainty, to refine communication with investors and minimize the risk of a negative effect on all asset classes, ”Dozin explains.

In a different way, Morgan Stanley was able to bring its expertise to Nykredit Realkredit in April when it wanted to market its first level 2 euro bond in six years. Morgan Stanley had worked in a five-person syndicate when the Danish mortgage lender raised € 500 million from AT1 in October 2020, but the issuer chose a smaller group for this year’s exit.

“Credit markets have been relatively benign in 2021, but surprisingly issuers are still seeing a significant delta in bank prices across all asset classes,” said Howard Brocklehurst, Head of UK / Ireland , Dutch and Nordic FIG DCM. “Nykredit commissioned a much smaller group than usual, including Morgan Stanley, in part because there was significant price disagreement and it was essential to have a clear-sighted advisor.”

Brocklehurst continues, “It’s not just about showing ambitious pricing and hoping you’re right, it’s about having an open and honest debate with the issuer. Client confidence in the objectivity of our advice is the foundation of our fundamental long-term relationships ”.

Morgan Stanley brings the same ethics to its approach to transactions large and small. Over the past year, he has conducted many relatively compact deals, including part of a wave of sub-indices printed, not only by small banks, but by larger institutions that needed small add-ons. capital in order to optimize Capital regulations.

Bawag, the Austrian bank, for example, arrived in September 2020 with a € 200 million no-call tier two to five year bond, with Morgan Stanley as sole bookrunner; and Permanent TSB, the Irish group, raised 125 million euros of AT1 capital with a perpetual six-year no-call in November. The deals for small institutions included two Italian life insurers who raised level two subordinated capital, first with Credemvita in November 2020, a bond of 107.5 million euros; then with Amissima Vita in February this year, a € 80 million issue, both directed exclusively by Morgan Stanley.

“These trades are in many ways more difficult than multi-hand execution for a frequent issuer in the benchmark format,” said Matteo Benedetto, head of the EMEA FIG syndicate.

“These deals wouldn’t have happened if we had just applied a standard approach where you win the mandate, structure the deal, advertise it, see how the marketing goes and then print it,” says Benedetto. “With these smaller trades, the execution risk is several degrees higher than that of a standard benchmark, so there is a daily discussion between the capital advisor, the syndicate, sales and trading as we are working to find demand for this type of transaction. “

“To be able to create market access and offer execution security to smaller and less frequent financial issuers, allowing them to raise subordinated debt and capital on terms comparable to their larger peers can obtain, is a game-changer for our customers, ”adds Maxime Stevignon. , head of bond capital markets France, BeLux and Switzerland.

The bank also brings its expertise in regulatory advice to the ESG debate where, for example, the progressive coupons appearing in sustainable development bonds are not largely compatible with the eligibility criteria of MREL and capital instruments.

“Ideally, the regulatory framework should evolve to facilitate the sustainable transition of the sector,” says Cristina Lacaci, global head of ESG structuring for global capital markets.

“We are optimistic about green capital and unprivileged green seniors who have been tested and are performing well, and for whom there is clearly a lot of appetite. But, until there is more clarity and compatibility between MREL rules and sustainability obligations, this market is going to take time to develop and thrive. “


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