StanChart, SG take top spots in 2016 Asia corporate/institutional rankings

Amid volatility across all major asset classes, banks endured tough business conditions in 2016. But Standard Chartered’s ability to provide cross-asset structuring solutions enabled it to retain its place at the top of the Asia Risk corporate rankings. On the institutional side, Societe Generale moved up to top spot thanks to a broadening of its product set

Asia Risk corporate and institutional rankings

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2016-corporate-rankingsCorporate rankings

With a slight air of understatement, Raghavan Rajagopalan of Standard Chartered says the last 12 months have been a "challenging year". He cites the multiple events that occurred at the start of 2016, which saw significant falls in emerging market equity values, combined with an increased focus on a potential hard landing for China's economy and further foreign exchange volatility across the region. Plus, the Bank of Japan made a surprise move into negative rates territory – a decision which against economic orthodoxy strengthened the yen.

"And then of course there was Brexit, with all the implications that have been well-debated."

The net result, says global head of structuring Rajagopalan, was a slow start to business in the first quarter of 2016 which then picked up in the following few months. Against this was the continuing hunt for yield in a low interest rate environment.

"There was heavy price action across most of the major asset classes at the beginning of this year, which has been seldom seen before at the beginning of any year."

According to Rajagopalan, such an environment played to Standard Chartered's strengths and explains the bank again topping Asia Risk's corporate rankings.

"We have expertise across asset classes in trading and structuring, which is critical to a cohesive risk management approach to clients. We have brought the trading, structuring and research teams much closer together to get more client-focused hedging solutions."

Vinod Aachi, global head of financial markets sales at Standard Chartered, cites the example of the advice the bank provided to an airline industry group, where it helped the client with some of the risk management and hedging issues in this part of the consumer sector.


We have expertise across asset classes in trading and structuring, which is critical to a cohesive risk management approach to clients
Raghavan Rajagopalan, Standard Chartered

"Given the benign rates environment this year, clients were more concerned about risk in foreign exchange and commodities. We debated extensively with clients on the approach for dealing with these risks."

From an emerging market perspective Rajagopalan says there was a significant amount of financing activity which then needed to be hedged back into local currency. Clients typically hedged via long-dated swaps, or forwards, and he says there was also a good combination of structured call spreads on the market.

One issue the bank has had to deal with is the uneven application of derivatives valuation adjustments, or XVAs, by regulators around the region. Even Japan, Asia's deepest and most sophisticated derivatives market, has only recently come round to using these valuations, and regional Asian banks are even further behind. With Standard Chartered applying the leading market standards of XVA pricing to their books at the start of 2016, Aachi says the result of this is some market distortion.

"There is still not a level playing field with respect to credit pricing across the region – foreign banks are at one end of the spectrum in terms of pricing XVAs, while the regional and local players are at the other end."

Necessity has in this case created invention, with Rajagopalan saying the bank has focused on more capital-efficient structures as a result of the increasing cost of capital. "We saw a shift in the usage of some hedging products, in line with their impact on credit risk and capital for banks. In this context, the larger and more sophisticated clients set the tone for hedging themes."

Another key theme was forex volatility. Doubts over the future direction of Asian currency values meant clients were unwilling to be locked into long-dated contracts and instead favoured optionality over certainty. Clients had a high degree of uncertainty over where forex rates could go, and as a result wanted access to potential upside as well, if the markets did indeed rally.

"Long-dated call spreads and its variants have become a popular theme. Given the steep forward curve and fairly steep volatility skew, these are currently the optimal products to hedge foreign currency debt against some of the major regional currencies, such as the rupiah, ringgit, and the Indian rupee."

But the overall theme was more cross-asset activity, with the exception of equities. Rajagopalan says the firm has also strengthened its cross-border interface – a move which enabled it to provide hedging solutions seamlessly to European corporates active in Asia, for example.

2016-institutional-rankingsInstitutional rankings

China may have a closed capital account but the sheer size of its financial markets and their growing interconnectedness with others in the region was highlighted by the events of last August. On August 9, the People's Bank of China made a surprise 4% one-day devaluation of the renminbi versus the US dollar – a move which sparked roller-coaster moves across the region's equity markets.

August 24 saw 8.5% wiped off the value of the Shanghai Composite, which then fell another 7.5% the following day, as part of a 40% decline between June and that date. Markets around the region also took a beating: Hong Kong, Malaysia and Korea posted big falls while India's Sensex registered its biggest one-day fall in its history – 6%.

These were testing times but, according to Yann Garnier, head of global markets Asia-Pacific at Societe Generale, which regained its top spot in the Asia Risk institutional rankings from fellow French bank BNP Paribas this year, that's when you build solid client relationships.

"At the peak of last summer's crisis amid a high level of market volatility, our clients have recognised and valued our commitment to providing liquidity in difficult equity markets. Whether it's liquidity or secondary market services we want to be there for our clients.

"In the derivatives space it's important to be present regardless of the market conditions and that's how we have been able to consolidate our franchise in difficult times."

SocGen has long been known as an equity derivative powerhouse but Garnier says the bank's offering has evolved significantly in Asia in recent years enabling the French firm to offer clients a service across all asset classes. Garnier says the firm has progressively widened its product reach in Asia and the completion of its acquisition of Newedge gave it the final component in 2015 of an active prime business.

"We were a global equity derivative house five or six years ago but since then we have, in a disciplined manner, completed our product set on rates, foreign exchange and commodities and added the prime services offering in Asia a year ago with the completion of the Newedge integration within our Global Markets division. Every year we invest to enhance our product offering. You can name an asset class or a product and we would probably be active in it – Societe Generale is starting to fill every box in the derivatives sector. We continue to build our offering from vanilla to sophisticated solutions in each and every asset class."


We are developing into a true local derivatives house. By adding licences year after year, we complete our local network in the region
Yann Garnier, Societe Generale

Garnier emphasises that the French bank still has a large structured product franchise but that this is part of a broader offering. He says the biggest change in the past 18 months has been the expansion of the firm's forex option business, which he says was previously less developed than other parts of the business. Last year, for example, it added an onshore forex option licence in China – a perfect piece of timing given the subsequent performance of the renminbi versus the US dollar.

But following an increase in headcount, the head of global markets says SocGen now has a material presence in the forex option sector.

"Forex has been identified as a key priority a few years ago; we have invested in our systems and people, until recently we completed building the teams. We started the forex options business by covering the local players – the regional banks – and then we added the corporates. And once you have a good flow of business from these two sectors you can add the macro and hedge fund space, which is what we have done at the beginning of last year."

Garnier says SocGen has also beefed up its delta one offering from simple market access to more packaged products – a move which he says has been successful across the region, particularly in Korea and Australia.

The firm has also invested in its local presence, gaining onshore licences in key north Asian markets of South Korea and Taiwan. In Seoul it gained an OTC derivatives licence at the end of 2014 and this enabled the firm to grab a bigger slice of flow business with local institutional investors.

"We are developing into a true local derivatives house. By adding licences year after year, we complete our local network in the region – which is an essential piece of our development to service local investors."

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