WINNERS: NORTH AMERICA
Best Commodity Derivatives Provider
In the wake of the credit crunch in 2007 and the stock market crash of 2008, hundreds of billions of dollars poured out of stocks and bonds and into commodities, which were seen as a safe haven. That drove up prices for most-traded commodities—and drove up demand for derivatives that are used to hedge against high prices. This year prices plummeted—and so did demand for commodity-related hedging. Through it all Goldman Sachs earned a better reputation than any other commodities derivatives dealer in North America for putting its own capital at risk for institutional investors who needed liquidity. It has also earned a reputation for providing clients with the best available investment ideas. "Goldman fills the breach," says a trader at a hedge fund who asked not to be identified. Now Goldman is considered well positioned to make markets in derivatives of so-called frontier commodities, such as grains and iron ore, that are less correlated with mainstream commodities, such as oil, gas and metals—and which have been Goldman's strengths since its purchase of J. Aron & Co. in 1981.
Best Credit Derivatives Provider
Institutional investors give Deutsche Bank higher marks than any other provider for keeping pricing low on credit derivative trades, making it easy to get out of a trade, and for supplying a steady stream of useful investment ideas. Deutsche Bank builds long-term relationships with clients by trading with them as much as possible, even if it means losing on some trades, says Nick Pappas, co-head of credit trading for North America at Deutsche Bank in New York. Monitoring high volumes allows Pappas and his derivatives team to identify critical trends, which they turn into investment ideas. An example of Deutsche Bank's openness is that, in the most frantic moments of September 15, 2008, the day Lehman Brothers collapsed, the team was letting the bank's clients pick their brains—and the whole team showed up at their desks at three o'clock in the morning to trade. Although credit derivative volumes have contracted, a survey by Greenwich Associates found that Deutsche Bank was the top share leader this year.
Best Equity Derivatives Provider
As institutional investors gravitate toward dealers that offer better pricing—and shy away from American banks that engender less confidence in the wake of the Bear Stearns and Lehman Brothers debacles—the name that comes up in every interview is Credit Suisse. They say the bank makes it easy to get out of an equity derivatives trade while its Wall Street competitors sometimes "gouge" them, and that Credit Suisse makes markets in twice as many liquid names (easily tradable shares). Credit Suisse also gets high marks for its innovative light-exotics—exotic equity derivatives that are still available in liquid names. The bank's franchise in equity derivatives can be traced to its acquisitions of First Bank of Boston in 1988 and Donaldson, Lufkin & Jenrette in 2000. "Credit Suisse in the US now has the visibility of JPMorgan or Goldman Sachs," says James Bennett, a consultant at Greenwich Associates, which conducted a post-crisis survey in which Credit Suisse topped its charts.
Best FX Derivatives Provider
Goldman Sachs commands a premium for its FX derivatives by bundling them with advisory services, state-of-the-art risk management tools and a willingness, when its FX desk sees an opportunity, to put its own balance sheet at risk for clients who lack liquidity. "That was definitely apparent during 2009, when our customers were looking to hedge large positions. We stepped up in an illiquid market in order to facilitate the orderly unwind of risk and when necessary, committed our own capital to help serve the needs of our customers," says Christian Salomone, head of North American foreign exchange options trading at Goldman Sachs. This year Goldman is packaging hybrid FX derivatives that allow clients to hedge against a risk of dollar-denominated interest rates remaining low. "Even with more exotic and highly structured derivative products, whether it's combining FX with interest rates and commodities, or long-dated structures where price discovery is opaque, we can, using our tools and experience, accurately price these structures in order to provide the exact risk profile that our customers are looking for," says Salomone.
Best Interest Rate Derivatives Provider
Deutsche Bank's interest rate derivatives business in North America is benefiting from an increasingly uncertain macroeconomic outlook. In 2009, clients who had exposure to low interest rates were using rate options and swaps to hedge against a low-rate scenario. Paradoxically, other clients were hedging against an inflationary scenario, which drove the growth of Deutsche Bank's inflation derivatives business. On both sides of the bet, institutional investors who lacked sufficient liquidity for such transactions came to Deutsche Bank more often than to its competitors because it was willing to put its own capital at risk, says Tom Hartnett, head of rates for North America at Deutsche Bank in New York. Another factor that attracted clients was that Deutsche continued to invest in enhancements to its Autobahn electronic trading system during the crisis. In October, Deutsche Bank enhanced the system again, launching Autobahn Prism, a liquidity aggregator that allows clients to execute complex interest rate swaps and other transactions by combining execution algorithms with Deutsche Bank's principal liquidity.