In a year when global investment banking revenues declined, only a few dynamic industries produced substantial growth for Global Finance’s sector award winners.

Author: Andrea Murad
J.P. Morgan headquarters, Sydney J.P. Morgan secured the top spots as best global and regional investment banks in 2019.

At first blush, it doesn’t look like it was a great year. Global investment banking net revenue decreased to $80.8 billion from $83.4 billion in 2017, according to Dealogic. Only technology and healthcare experienced double-digit growth; most sectors either maintained earnings (at best) or saw double-digit declines. High-growth sectors have been pushing the industry forward as banks look to help clients maintain momentum, develop strategic partnerships, strategize businesses, and expand globally.

Sector specializations are often what create global practices. Maintaining and growing an international practice requires teams with extensive sector knowledge and deep relationships with industry participants and, in some, government and regulatory bodies. Global Finance’s Sector Awards, recognizing exceptional service delivery in each market, honored a total of eight banks in 12 sectors.

The International Investment Team at Shenzhen-based CCB International, which took the award for Technology, operates in an especially dynamic landscape, as many companies founded in China are now expanding into overseas markets.

But that also meant that business was plentiful. Volatile market conditions didn’t stop technology companies from achieving revenue growth and accomplishing new rounds of financing in 2018. Investors focused on factors such as business logic, market entry barriers, founder and management qualifications and experience, market size, and growth potential.

The greatest growth occurs when technology is applied to the mass market, and each business model requires analyzing and predicting the potential market size. Since many end-users tend to be younger, understanding what the young generation desires is key, say CCB International Investment Team members.

Some sectors are significantly affected by political and economic risks, and maintaining or growing investment banking market share in these markets can be a challenge. One of these is Metals and Mining, for which BMO Capital Markets took the sectoral award. Mining companies operate and invest across jurisdictions and globally, have been affected by a confluence of factors including the economic slowdown in China, global trade tensions, and a strong U.S. dollar that drove down the prices of industrial metals in 2018. Gold in particular was hurt by rising interest rates.

“Still, prospects are strong for most metals as supplies shrink and mining investments stagnate,” says Ilan Bahar, co-head of Global Metals and Mining, Investment & Corporate Banking, at BMO. “We believe in the long-term fundamentals of the space and continue to invest in and deploy resources to the sector while others are retrenching their commitment.”

Capital markets and M&A activity within the sector has been lagging since 2012, and continued market volatility in 2018 didn’t help. In this environment, BMO has worked to maintain its market share; last year it was involved in 20 announced acquisitions, including guiding Nevsun Resources Ltd. on its $1.4 billion takeover by Zijin Mining Group Co.

Overall levels of M&A activity were higher in mining and metals than in prior years, with especially intense activity in gold mining. “This may lead to asset divestments following completion of such transactions and intermediate/junior companies choosing to consolidate to remain relevant in a market which is increasingly valuing scale and liquidity,” says Jamie Rogers, co-head of the global metals and m group at BMO.

However, “the headwinds for gold may be starting to turn,” Bahar says. Volatility and geopolitical risk help, and the upward movement of the U.S. dollar, along with lower expectations for rate hikes, prompt some close observers to forecast stronger gold pricing and gold equity valuations in 2019.

Recent Chinese policy could bolster the metals markets as well. Ramped-up fiscal spending through construction and infrastructure projects, even with expected lower economic growth, suggests metals will be a strong element in what growth there is, Rogers argues.

Macquarie Capital is the only Australian name among our 2018 sectoral winners, for Infrastructure. The firm has a team of specialists across North America, Europe, Asia, Australia, New Zealand, Africa, and the Middle East providing strategic M&A and capital raising advice. It also partners with clients by investing capital in early-stage projects.

“Infrastructure investment is instrumental in advancing economic development globally, and demand for private-sector capital to bridge the funding gap continues to grow,” says Daniel Wong, co-head of Macquarie’s Global Infrastructure and Energy Group. The bank focuses on infrastructure for transportation, power and utilities, renewables, and social services—e.g., courts, hospitals, prisons, and schools.

One of Macquarie’s flagship deals in 2018 was designing, building, financing, and maintaining the Blankenburg Connection to improve roads between Rotterdam and its port. Macquarie Capital comprises 70% of the BAAK consortium along with Ballast Nedam (15%) and DEME (15%); BAAK closed the €1 billion deal, which is the largest public-private partnership project awarded in the Netherlands to date. The Blankenburd Connection involves building a 4-km highway with land and immersed tunnels and two major overpasses. After the 5.5-year construction period, the consortium will maintain the new road connection for 20 years. Macquarie Capital was the sole financial advisor and debt arranger to BAAK as well.

Macquarie Capital also financed Grangegorman Campus, a public-private partnership and one of Ireland’s largest educational campus developments, through its 100%-owned Eriugena consortium. The €220 million project will create academic facilities for 10,000 students and 600 staff members at the Dublin Institute of Technology’s Colleges of Sciences and Health, Arts and Tourism and its School of Electrical and Electronic Engineering. The new facility will combine renovated historic buildings with new construction to consolidate DIT’s existing 39 locations into one campus in Dublin.

Double And Triple Threats

Three banks won honors in more than one sector. Bank of America Merrill Lynch pulled $468 million in net revenue from the health care sector (a 5.4% share of the industry), $500 million in oil & gas (5%), and $315 million in real estate (7.1%). J.P. Morgan took honors for serving financial institutions, with a 7.1% market share and $1.2 billion in earnings, and also telecoms, where it has nearly 8% market share. Goldman Sachs won the consumer sector, where its 10.8% market share earned it $883 million, and in and in industrials/chemicals, where it controls nearly 7% of the global market. 

Consolidation is gaining pace in several of these sectors—notably finance and healthcare—so expect lively changes and lots of dealmaking in 2019.

With banks under pressure to improve their cost-to-income ratios in order to be successful in the new digital era, Serrala’s Lindemann says white label solutions and banking-as-a-service are not a contradiction for banks. “The two approaches complement each other perfectly,” he says, “as it’s an opportunity to offer new value-added services that clients are willing to pay for, which generate new income streams for banks.”

It also allows a bank’s corporate clients to manage all key payment processes, including receiving and processing payment-status messages and managing payments using one central platform, which provides greater transparency and efficiency. “Cloud solutions can be implemented quickly and be easily augmented with managed services,” says Lindemann. “Banking-as-a-service can cover client-facing solutions, as well as a bank’s internal IT infrastructure to manage processes and customer business.”

Anders la Cour, CEO and co-founder of Banking Circle, says APIs can help corporate treasurers drive automation within treasury departments. “APIs are already providing banks with added value by streamlining their underlying legacy infrastructure, without adding significant cost,” he explains. “APIs’ flexible and scalable architecture means banks are now able to offer innovative ways of delivering products to customers, without the significant investment it would take to fully overhaul their legacy technology. APIs will be key for the future of banking.”

La Cour does not see banks being replaced by other service providers anytime soon. “But their role is changing,” he says, “and they are no longer the only solution for all of a company’s finance needs. If I were a corporate treasurer today, I would take time to fully assess my options based on the size of my business and the demand.” Compared to most fintechs, traditional banks have access to larger balance sheets and liquidity, and companies are likely to continue to use banks for these services. Yet, la Cour says fintechs provide greater flexibility when it comes to payments. “If I were a small to midsize company, I would also assess the fintech industry for access to working capital,” he adds.

SECTOR WINNERS

Category
Bank
Consumer Goldman Sachs
Financial Institutions J.P. Morgan
Healthcare Bank of America Merrill Lynch
Industrials/Chemicals Goldman Sachs
Infrastructure Macquarie Capital
Media/Entertainment Morgan Stanley
Metals & Mining BMO Capital
Oil & Gas Bank of America Merrill Lynch
Power Credit Suisse
Real Estate Bank of America Merrill Lynch
Technology CCB International
Telecoms J.P. Morgan