The end of loose monetary policy and the resulting liquidity flight has had its share of casualties, including the weakening of the Australian dollar and widening of interest rate spreads. That has meant companies and investors in the South Pacific nation preferred a bank that demonstrated efficient execution of trades and better pricing.
Australia’s fourth-largest lender, Australia and New Zealand Banking Group (ANZ), has exhibited such efficiency in the past year. Coupled with its derivatives products strengths and a network that straddles 34 markets, that means ANZ has been named Australia House of the Year.
A return of volatility and escalating trade tensions between the US and China – Australia’s largest trading partner – has meant companies have to be nimble when it comes to deals. To do that, they need not just a reliable banking partner, but one that offers to bring in everything from foreign exchange to rates hedging to funding within one window.
“We have moved to offer a complete solution – whether it be rates, forex hedging, capital raising either through the bank’s balance sheet or access to markets,” says Shayne Collins, managing director of ANZ Markets. “That has allowed us to move quickly when an opportunity arises. A prime example is the cross-currency basis movements, where the window is short and our network allows us to tap markets at the right time and facilitate debt-raising and investor opportunities for our customers, such as north Asian investment flows and Australian and New Zealand client offshore issuance. ”
Helping ANZ in the holistic approach is its proprietary platform, called Sky, which integrates derivative structuring, pricing and risk management capability for trading and sales functions at the desk level. The Sky platform is a centralised system for pricing, analytics, official valuations and risk for ANZ markets. While the platform was launched in 2014, it has grown from being a rates-only platform to the preferred solution for all products at ANZ. This has given the bank an advantage against competitors through better price consolidation across multiple asset classes and customer portfolios.
Such service came to the fore when the volatility in the Australian and New Zealand currencies called for banks to work closely with customers around risk management. Short-dated funding needs of clients also soared as spreads moved out and the lender that could analyse the market and advise clients on the right moves stood out. The Aussie has dropped about 10% against the greenback from where it was trading 12 months ago.
An example of ANZ’s total capital solution is the approach it took to service the Tasmanian Public Finance Corporation (Tascorp), who needed to hedge a euro obligation on an acquisition for the Tasmanian state. The acquisition was for delivery in three years’ time.
ANZ discussed forex execution and hedging strategies, including vanilla forex forwards. The client’s credit position and ability to tap better rates by itself meant the traditional solution of forex forwards wasn’t the answer.
Tascorp could fund the Australian dollar needs itself through new issuance, the proceeds of which could then be converted to euros and invested for the duration of this hedge. In this way, the client would have gained a better outcome than it would have done through forex forwards traded in the market.
ANZ was chosen as it offered us the full suite of hedging – from forex to fixed income, to custodial services – that was managed through a single window
Heath Baker, Tascorp
In order to offer this solution, ANZ’s fixed income team first sold the bonds to raise Australian dollars. Then, with the help of its structuring and forex team, it executed the forex translation. Its debt syndicate team conducted two euro private placements with ANZ group treasury, which agreed to take the client’s euro funds for the duration of the hedge.
This also provided the bank with the opportunity to lock in some medium-term funding by issuing to the client, which was not a traditional buyer of bank senior unsecured paper in size.
“As a result of working seamlessly across the various teams within ANZ, we were able to structure a holistic solution to get a better outcome for the client while also minimising capital usage for ANZ,” says Paul White, ANZ head of capital markets. “There’s no doubt [that] what we can offer clients as a whole is greater than the sum of the parts.”
Tascorp says it picked ANZ from a shortlist of three after reviewing the capacity of its existing dealer panel group.
“ANZ was chosen as it offered us the full suite of hedging – from forex to fixed income, to custodial services – that was managed through a single window,” says Heath Baker, head of financial markets & client services at Tascorp. “ANZ’s ability to come together and provide a [full service] solution, rather than dealing with separate desks, was a crucial element in delivering a successful solution. The total capital solution worked very well for us.”
Investment in technology has also boosted such collaboration. After the successful launch of Prophet, an in-house eForex algorithmic engine in 2017, which led to cost savings and brought eForex market-making intellectual property in-house, the bank unveiled ANZ FX Overlay in March 2018: a one-stop, tailored, systematic, cost-efficient and fully transparent hedging platform for funds, superfunds and family offices in Australia, Singapore, Hong Kong and Japan.
The system allows a holistic view across all funds on one platform and consolidation of all data in one place, with quality and immediate data on performance against benchmarks across the entire platform. It also paves the way from moving away from passive to active hedging, says ANZ.
“For volume-driven flow products, seamless execution is key in current markets,” says Collins.