Global Winners: Tacking Into The Wind

The past year will not go down in history as a bright spot for investment banks. Driven partly by conflict in the Middle East and falling energy prices in early 2016, equity prices tumbled and investors fled to safe havens like gold and, to some extent, bonds.

As a result, investment banks had a hard time raising money for corporate clients. Take related revenue as a measure of hardship: In calendar year 2016 banks reported a 5% decline year-on-year in revenues from worldwide investment banking activities—ranging from raising money for their clients on stock and bond markets to advising them on mergers and acquisitions. All told, global investment banking revenue was only $73.6 billion, the lowest amount since 2012, deep in the global recession, when the figure fell to $69.3 billion, according to Dealogic.2016, equity prices tumbled and investors fled to safe havens like gold and, to some extent, bonds.

The few investment banks that excel in this challenging environment distinguish themselves by consistently making wise use of their access to global capital markets, sustaining strong balance sheets, leveraging their most talented bankers, exploiting low interest rates and convincing their clients to price deals realistically.

The winners of our Best Investment Banks awards were selected by Global Finance editors with input from industry experts using a wide range of criteria from market share to number and size of deals, including service and advice, structuring capabilities, distribution network, efforts to address market conditions, innovation, pricing, after-market performance of underwritings, and market reputation.

UBS stood out on these criteria and wins our overall award for Best Investment Bank worldwide. UBS displayed a superlative command over capital markets in the M&A arena despite increasingly volatile asset prices. In the United States, the 155-year-old Swiss bank was quick to spot an opportunity to advise regional US banks on mergers and acquisitions to increase their capitalization. The bank also showed a knack for orchestrating deals in cash. In one telling example, UBS served as the lead financial advisor to EverBank of Jacksonville, Florida, on its $2.5 billion sale to Teachers Insurance and Annuity Association (TIAA) in the largest all-cash M&A transaction since 2009, according to UBS.

In global equity capital markets, UBS has stood out among the bookrunners of several of the world’s most lucrative initial public offerings (IPOs) in a year

that will go down in Dealogic’s records as the worst for IPOs since 2012. The Swiss bank got in on some of the hottest deals in Asia-Pacific, the only region in the world that saw solid growth in capital markets last year. UBS was a bookrunner for the $7.4 billion IPO of Postal Savings Bank of China last September in the world’s biggest IPO since Alibaba raised $25 billion in 2014. All told, UBS raised a formidable $24.3 billion in 194 equity deals for its clients last year, according to Dealogic.“The M&A market is white-hot at the moment,” says Piero Novelli, UBS global head of advisory. “We are putting extra focus on our most important clients and ensuring we give the greatest support to our most effective bankers.”

Novelli emphasizes that UBS has paid attention to developing its teams, particularly their ability to collaborate globally. “We are deploying our top bankers and best advisors on the most important clients and most promising deal situations to ensure we are extremely focused,” he says.

Renewed interest in M&A paved the way last year for a renaissance in equity-linked debt, one of few bright spots in the world’s capital markets. It helped that interest rates were low, making it cheaper for companies to issue convertible bonds, while high share prices made convertible bonds more attractive by mitigating investor concerns that their equity at maturity would be diluted by the issuance of new shares.

Multinationals like BP responded by issuing convertible bonds just to “show they are being agile” enough to “tap another pocket of investors,” says Thomas Feuerstein, managing director of equity-linked origination at Societe Generale Corporate & Investment Banking, which underwrote a £400 million ($429 million) convertible bond for BP last year. SG wins our Best for Equity-Linked Debt award.

“Back in 2010, the market was driven by small-cap issuance,” explains Feuerstein. “Now we see very large issues, like BP, more frequently.”

Last year was especially challenging for companies that tried to list their shares on the stock market for the first time. Morgan Stanley won our award for Best in IPOs by using its superlative access to new issuers and investors around the world to carve out the largest slice of a shrinking pie, raising $262 million for its clients in 21 initial public offerings in the US and 14 others in Europe, the Middle East and Africa. Bear in mind that the revenue that all investment banks earned from IPOs worldwide fell to just $4.1 billion in 2016, the lowest level since 2012, when they earned only $3.9 billion.

This year will present a whole new set of challenges for our winners. On March 2, just 15 days after Morgan Stanley raked in $26 million in fees as lead underwriter of the IPO for Snap, the parent company of social media phenomenon Snapchat, the shares were trading 19.5% below the IPO price of $24.28. That experience may impact interest in the IPOs of financial technology company Palantir, online car service Uber, and other technology companies.