Credit Suisse has mastered the art of teamwork – both internally through collaboration across business lines and external partnerships. It is all part of the Swiss bank’s transformation into a dealer that emphasises expanding the market for structured products as whole and providing smart solutions for clients over hoarding assets and obsessing with trade volume.
The fruits of that have been seen this year in the launch of an innovative repack platform for institutional investors and an inventive new model for risk syndication that has wooed pension fund clients across the continent.
“What’s drilled into us is the importance of cross-collaboration, working with each other and getting the job done for our clients. That’s come all the way from the top – from the chief executive. It’s percolated across the whole floor and it’s working in abundance,” says James Howard, head of fixed income investor products at Credit Suisse. “We don’t print a trade, put up barriers and just defend our position. We always want to be at the cutting edge of the market. You can either swim against the tide or embrace change and move forward.”
‘Change’ this year has meant putting aside old rivalries with investment bank competitors and instead teaming up with them to launch the Spire multi-dealer bond repack platform, organised as a Luxembourg-domiciled special-purpose vehicle that can issue standardised repacks combining many varieties of underlying credits with attractive asset swap payouts.
The twist is that Spire notes can be arranged by any of the four dealers tapped into the platform, enhancing their liquidity and providing unrivalled risk mitigation, as if one issuer defaults, another can jump in as replacement counterparty to honour the asset swap.
Joining forces with Citi, JP Morgan and BNP Paribas, Credit Suisse helped launch Spire earlier this year and printed the very first trade in May 2017. At present, the Swiss bank has placed five of the 13 repacks issued by Spire, with total issuance by the platform reaching more than $500 million. Spire is proving so successful that another three dealers have applied to join.
“Standardisation is the game changer,” says Paul Bajer, managing director of credit structuring at Credit Suisse. “On Spire you only need approval once and you know the terms you are getting will be same each time you use the platform. It saves a huge amount of time and money processing trades.”
As the number one repackaging house by market share since 2014, Credit Suisse’s participation in Spire could appear self-defeating at first. It is still supporting its proprietary repack platform – Argentum – and the bank upgraded its service offering with Argentum Pro Notes, which combine vanilla bond repacks with payouts linked to the performance of established credit funds. Sold to private bank clients, Pro Note volumes have exceeded $100 million to date. However, Spire is expanding the universe of repack clients rather than cannibalising the bank’s own trade flow.
Standardisation is the game changerPaul Bajer, Credit Suisse
“The clients printing with us on Spire are institutions that wouldn’t have traded with us before on a single-dealer platform,” says Bajer. “It’s new business for us and we are not seeing the volumes on any of our other platforms fall down at all. We are improving the client base and increasing the number of companies with access to this model.”
Credit Suisse has expanded established product lines – for example, boosting its market-leading iCCPI (individualised constant proportion portfolio insurance) solution for insurers that issue protected unit-linked investment products. It has been active in this space since 2013, and this year completed its fourth integration, bringing the total number of policies covered by its innovative asset-rebalancing solution to more than 9,000.
Yet the real show-stopper partnership this year was a groundbreaking risk syndication agreement with the Universities Superannuation Scheme, one of the largest UK pension funds. Here, Credit Suisse offloaded a hefty chunk of a $3.1 billion middle-market loan book in return for a fee-based revenue stream for servicing and risk managing the assets on USS’s behalf. Under the terms of the deal, the Swiss bank maintains a minority interest in the portfolio and has the freedom to continue originating loans to add to the pool.
“We always liked the risk-adjusted return of the asset class. We just didn’t like the balance sheet and liquidity outflows it entails. The co-investment agreement offers a blueprint to originate future product going forward,” says Arun Cronin, head of European collateralised loan obligation business and credit financing at Credit Suisse.
The deal allowed Credit Suisse to free up balance sheet and cut its leverage ratio capital requirements accordingly while continuing to harvest cashflows from the divested loans. Several other European pension funds have since approached the bank with hopes of getting involved in similar partnerships.
“The pension funds like this model,” says Cronin. “We are aligned with them as co-lenders and they rely on our structuring and risk management, which saves them from having to hire rungs of credit analysts, structurers, and originators, but they’re still picking up the best part of 150 basis points of pick-up over European AAA CLOs.”