Finding a way
In a year characterised by disruption and frequently shut markets, an experienced hand and innovative ideas were required. For steering the reopening of markets and guiding issuers through a turbulent year with precision and creativity, UBS is IFR’s Europe Financial Bond House of the Year.
All issuers had to learn to roll with the punches in 2022 and the blows came thick and fast. For large stretches of the year issuers’ market access was fleeting and unpredictable.
Quoting Mike Tyson’s famous adage, Nigel Howells, head of FIG debt capital markets for EMEA, said: “‘Everyone has a plan until they get punched in the face’, and last year that punch in the face came from the market."
In those periods, UBS’s expert reading of the market shone through, with its appreciation of the needs of both issuers and investors allowing the bank to manage the pipeline and get issuance moving time and again.
That was most evident in the gradual reopening of primary markets after Russia’s invasion of Ukraine in February. UBS was there every step of the way as clients leaned on its guidance, landing the bank roles as a lead manager on the first euro covered bond, first euro holdco senior, first euro Additional Tier 1 and first Reg S US dollar AT1 after the conflict began.
“The Russia invasion was the first real shock to the market,” said Ed Mulderrig, head of DCM syndicate in EMEA. “It was at that point at which issuers really relied upon the people they feel they can trust and that can get the right trades over the line.”
UBS was also among the first on the scene after the euro market’s summer break, playing a leading role in restarting covered bond and subordinated supply earlier than many had expected, spying an opportunity before conditions deteriorated once again.
In the broad rally that swept through markets in November, UBS was at the forefront of completing some of the year’s most difficult trades, for example guiding National Bank of Greece and Piraeus Bank to much-needed MREL-eligible senior trades, as Greek banks were under intense pressure to bridge the gap to their regulatory targets. The two deals outperformed expectations with their international distribution and tight levels.
Even when the main markets were closed, UBS’s know-how came to the fore, charting a path down routes less followed – whether by shepherding 23 non-domestic deals through the Swiss franc market, leveraging on its leading position there and showing clients an always available alternative, or through more innovative structural solutions.
“There were no easy trades this year and to get things done we had to get creative,” said Howells.
Take UBS’s role as one of three dealer-managers on Shawbrook Group’s pioneering AT1 exchange offer, which shifted investors out of the UK issuer’s £125m 7.099% perpetual AT1s into a new instrument offering a 100bp higher reset spread ahead of the old notes' call date.
The transaction’s small size belied its importance. It allowed Shawbrook to replace the note when issuing in the primary market would have been prohibitively expensive and offers a template for refinancings when markets break down.
“Where there’s been great volatility in the past, European markets have tended to retrench, and that volatility has led to less communication,” said Barry Donlon, head of DCM for EMEA. “Whereas what we’ve pioneered this year is more communication between investors and borrowers.”
Further liability management prowess was on show in an open market repurchase exercise to optimise the AT1 stack of Lloyds Banking Group. UBS also acted as structuring adviser and bookrunner on only the second green AT1, a €300m deal for De Volksbank that cleared a tough market in June in the face of continued scepticism over the green AT1 product.
But a shift in issuance patterns meant it was not just their clients but also UBS itself that had to adapt in 2022, attuned to the changing times.
Issuance of capital was down sharply year on year, reflecting issuers’ reduced refinancing needs, while covered bond supply skyrocketed and senior unsecured volumes also rose. While holding on to its top tier position in the subordinated sector, UBS pulled off a successful pivot, expanding its share of funding markets. It led more than 100 covered and senior transactions and in so doing won repeat business from seasoned large funders – from Rabobank to Lloyds and from CaixaBank to Westpac.
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