BBVA to leverage new cross-asset private banking structure, accelerates digital transformation

BBVA is pushing the digital transformation of its activities with the launch of Banca Digital, a new division headed by Carlos Torres Vila. SRP spoke to Emilio Sainz de Baranda (pictured), head of global equity derivative sales at BBVA Global Markets about the bank's performance in 2016 and its plans for 2017 following the launch of a new sales structure in its European global markets in the last quarter of 2016.

"BBVA CIB made changes in the European sales structure within global markets, moving from a product- to a client-oriented approach: we launched a cross-asset private banking team managed by David Mendes," said Sainz de Baranda. "We are not the first ones to do this, but we think now is the right moment, as we can enhance credit products with equity clients and because we have a good opportunity to fill the gap left by number of competitors that have retreated."

Last year was challenging for structured products as low interest rates continued to limit the upside on offer from fully capital- and soft-protected retail products, while the uncertainty and risks from the soft landing of China, the UK referendum on Brexit and the US presidential election, resulted in increased volatility and the prices of a number of stocks falling by up to 20%, according to Sainz de Baranda. "These and other geopolitical events dragged down most equity indices, which picked up somehow in December," said Sainz de Baranda. "The performance of most European equity indices in December was up by 5-7%, which saved the overall annual performance."

Despite the challenging backdrop, BBVA's equity derivatives and structured products had a very good year in Europe, according to Sainz de Baranda. "In a decreasing market in terms of volumes, we were able to capture a higher sales volume on the back of an increased number of transactions and clients - up 25% in volume and up 50 clients in 2016," said Sainz de Baranda.

The bank's Mexican structured products also had a good year, especially at the beginning, when investors were focused on US underlyings that were delivering better returns than domestic assets. However, since President Trump's election, the market has slowed down a bit, with investors shifting towards Mexican underlyings "on the basis that the recent falls in value provide a good entry point to the market, but they're using US dollar-denominated structures", according to Sainz de Baranda.

In Asia-Pacific, the bank has only started to build a business, and the approach is to increase the bank's footprint organically and try to increase its market share by tapping into opportunities and specific demand from clients, according to Sainz de Baranda.

BBVA is seeking to leverage its internal pricing capabilities to offer increased connectivity to the wider market, according to Sainz de Baranda. "The new platform has proven to be very efficient in responding quickly to requests from clients, and we want to expand it and provide a real-time, full pricing and execution venue for our structured products clients," said Sainz de Baranda. "There are as many click-and-trade platforms around as there are issuers of structured products, and the differentiating factor for us will be the accessibility and the quality of the pricing. We will also provide added value with products outside platforms, as our institutional clients are also seeking to differentiate themselves from competitors. We don't offer a one-size-fits-all kind of service: we work with a customised service beyond pricing and trade execution."

At a product level, credit-linked notes (CLNs) for private banks will be a focus for the bank, as they are "a very good alternative for investors seeking yield enhancement in the current low interest rate environment, which will remain unless inflation spikes", according to Sainz de Baranda.

"Our focus will be on single names, linear baskets and tranches on the main credit Indexes," he said. The bank's equity derivatives will continue to stick to its philosophy of not structuring anything that cannot be explained easily to investors and that it is not liquid, which leaves out proprietary indices and low liquid stocks and indices, according to Sainz de Baranda. BBVA also expects to develop its exchange-traded and mutual funds books in 2017.

However, equity volatility remains low and "that is a problem for private banking clients, as most of their investing activity is based on selling volatility", according to Sainz de Baranda. "In a low interest rate regime, this is the main challenge we see at a product level in Europe," he said. The bank's listed vanilla instruments will be a very good complement for structured products "as they are intended for different purposes, such as hedging, call overwriting or to invest in volatility".

The bank is also adopting new regulatory guidelines which "have been beneficial to the market", he said. "You may like them, you may not, and they may affect your business at different levels, but the bottom line is that providers have to be responsible for delivering value to their clients and be accountable if they don't," said Sainz de Baranda. "Regulation around capital requirements will also stop the over-leveraging and excessive risk-taking that we saw in the past."

At an investor protection level, the bank believes Mifid 2 will pan-out in a similar way to the first markets in financial instruments directive, according to Sainz de Baranda. "There was significant concern in the industry about the impact of Mifid, for sales volumes in particular and the structured products market in general, but we remain cautiously confident that the market will show its resilience again," he said. "Most manufacturers and distributors have already improved their processes to address investor protection requirements, and, although MiIfid 2 will bring further requirements and increased costs, the impact will not be negative for the industry."

Regulators are pushing the market towards transparency and upcoming guidelines will mean that some of the activity could end up in issuer and trading platforms, according to Sainz de Baranda. "Regulation will dictate the development of this set up," said Sainz de Baranda. "We are developing our capabilities to be able to plug-into any platform and provide pricing. It is not a focus at the moment, and we remain committed to the reverse enquiry set up, but we are ready to respond and adapt our offering to the regulatory framework."

In December 2016, the bank launched BBVA Trader, "a platform 100% designed and devoted to trading" as part of its plans to increase its digital profile. Sophisticated investors can now access BBVA Trade to purchase-sale shares, warrants and ETFs intended for users with a trader and heavy-trader profile. In its second stage, the platform will include trading with futures, options and contracst for difference.

BBVA sold an estimated €1bn in structured products in 2016 and €306m year to date, according to SRP data.