FICC products house of the year: Crédit Agricole Corporate & Investment Bank

Structured Products Europe Awards 2015: Crédit Agricole’s rebuilt structured products business, underpinned by a strong balance sheet plus the popularity of its CLNs and repacks, has gained traction with clients

Regis Benichou, Crédit Agricole

Four years since it scaled back most of its commodity and equity derivatives businesses, Crédit Agricole Corporate & Investment Bank (CIB) has returned to the main stage in structured products, as part of a major rebuilding process at the investment bank.

Crédit Agricole started gearing up its fixed-income business in 2013, offering more interest rate-linked products, credit-linked notes (CLNs) and cross-asset instruments, before adding bond repacks and secured funding in 2014. In recognition of the diversity of the bank's offering and strength of its reputation, it picks up this year's award for the provision of structured products linked to fixed income, currencies and commodities (Ficc).

The simplicity and flexibility of vanilla structured products have made them increasingly popular with investors, the bank says. Sales in structured fixed-income products have grown by an average of 20% each year since 2011, with the strongest performance recorded in CLNs and repack structures.

"Redeployed in 2011, our CLN business started with vanilla products and gradually expanded to more complex CLNs. As a result, issuance grew by more than 50% from 2011 to 2012 and by a further 10% year on year since then. Our repack platform experienced a strong development in 2014 and 2015, with the volume of issuance growing by more than 70% year-on-year," says Régis Benichou, head of structuring for Europe, the Middle East and Africa, and global head of pricing at Crédit Agricole CIB in London.

An asset manager at one insurance group in Italy has used the bond-repack structures as a hedge against a possible rise in interest rates, with tenors mostly between seven and 10 years. "The bank has always been good on the structuring side and they are good at proposing what a European insurance company needs. They are always competitive in their tenders," he says.

Our repack platform experienced a strong development in 2014 and 2015, with the volume of issuance growing by more than 70% year-on-year

A large part of Crédit Agricole's success has resulted from renewed confidence in its balance sheet, after it came under mounting pressure in the wake of the financial crisis to build up its capital and liquidity buffers, and create a more stable operating base. Crédit Agricole Group now has a common equity tier-one ratio of 13.2%, according to its financial results for the first half of 2015; far in excess of Basel III minimum requirements.

Having a healthy capital ratio has given investors an extra degree of comfort, driving increased appetite for capital-protected fixed-income products, says Samy Beji, global head of structuring at Crédit Agricole CIB in London.

"Crédit Agricole's solidity appeals to investors looking to differentiate the credit exposure from their tailor-made returns. The most compelling factor is that, for the first time, tailor-made solutions have grown bigger than the more typical 'flow' structured product business in 2015," says Beji.

Crédit Agricole's diligence in risk management extends well beyond capital and liquidity ratios. The structured products business is now distributed across multiple asset classes, regions and segments, and the bank has to be constantly mindful of the associated legal and regulatory requirements.

One popular trade this year has been a floating-rate CLN, referencing 200 equally-weighted entities spread across the iTraxx S23 Main and Crossover indices with a 0% recovery on defaults. The product was designed to offer higher returns and greater transparency than a single-name note.

"In a single-name CLN, whenever there is a credit event you are exposed to the recovery value of the reference entity, but this product was designed in such a way that each default had an impact of 50 basis points on the capital. So if you end with 10 defaults, you redeem at 95% of the initial capital," says Benichou.

For the head of structured products at a Swiss wealth management firm, the CLN provides a well-diversified series of names, mixing high-yield and investment-grade components. This note carries a higher coupon and is one of the few ways to gain exclusive exposure to European credit.

"If you transact a CLN on five names, the recovery process is straightforward," he says. "On 200 names, it is much more complicated, so we liked the simple zero-recovery nature of this format. It is much clearer in terms of settlement. On pricing, Crédit Agricole is one of the best, with a quick turnaround. Their funding is strong, which gives them an advantage in pricing, as we have to provide best execution to our clients."

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