BBVA in expansion mode, sets global ‘factory’ approach in motion

The arrival of Roberto Vila, the former global head equity markets and commodities (EMC) at Commerzbank in London, as global head of equity, BBVA Corporate & Investment Banking, in September 2019, triggered several changes at a business and senior management level. He was charged with expanding global growth plans for the equity product within the bank.

Vila brought with him two former Commerzbank bankers including Nicolas Allano, a managing director in derivatives trading and Clémentine Drevon, formerly head of equity markets and commodities' management office at the German bank.

In our investment products niche, we want to compete with the best houses in developing markets

Shortly after, Carlos Gil (pictured) was appointed global head of equity derivatives sales taking over Emilio Sainz de Baranda who was at the helm of the business for the last 10 years. Gil, formerly head of European fixed income and FX flow business, was given responsibility for the business’ expansion from its European geographical scope to a global set up.

“The idea is to leverage the work that BBVA has done over the last couple of years moving into a factory approach with a comprehensive catalogue of products with global reach,” says Gil. “In our investment products niche, we want to compete with the best houses in developing markets and leveraging the enormous strengths of the particular home markets of the different BBVA geographies.”    

The Spanish bank has a strong footprint and distribution capabilities across Europe, especially with Swiss private banks as well as offshore brokers and private banks in the UK. It can also serve institutional clients in Germany, France, Portugal and Spain. This team is led by Juan Ramon Dominguez (right-below). BBVA also has a team in New York covering North America and Latam led by Sancho Narvaez, managing director and head of Latam institutional investor sales.

“Our coverage of the region has been limited and was focused on a small number of markets but we have increased our penetration over the last couple of years and we have started to build an important franchise for our business,” says Gil.

Starting next year, the bank wants to increase its coverage of US onshore and offshore investors, and is currently working in the launch of new issuance vehicles and going through the compliance. The plan for Latam is based on increasing its market share and coverage of the Mexican and Latin American markets by leveraging the bank’s high-street presence.

“We also have plans to increase our equity derivatives activities in Turkey and are working hand in hand with BBVA Garanti to develop this business,” says Gil, adding that the bank is also seeking to revive its activities in Asia “We expect to build up our presence there within the next two years as there is appetite for new paper and we believe we can provide a competitive offering when we’re ready.”

BBVA’s equity derivatives structured products offering for institutional clients (solutions) is purely equities but its distributors business (B2B2C) is under a cross-asset mandate - equities, FX, credit, everything going through its internal distribution networks and platforms has been integrated.  

New approach

“We’re moving away from manual processes to be able to scale up the business,” says Gil. “Because of the size of our business we did not need to go fully digital and we could serve our clients with a handful of tools and the traditional client service. However, as we enter this new phase and we make our offering available globally, we need to be able to be efficient as with the current set up we would not be able to serve an expanded number of clients efficiently.”

The bank has been investing in its structured products platform over the last couple of years to have a back-to-front streamlined process, but the goal is to further leverage the wider digital capabilities of BBVA and continue to automate functions.

“This business is about offering clients quick access and facilitating transactions, so you have to be able to provide your clients with pricing, documentation, compliance (Mifid, Priips…) as well as a post-trade service. Having all those functions automated will enable us to expand and leverage our existing business in a sustainable manner,” says Gil.

This year, with the pandemic and the work from home situation, BBVA has invested more and made more progress than it had planned although there is “still some ground to cover before we can deploy our offering globally”.

Automation

The recent developments and functionalities BBVA has added to its e-commerce platform “are good examples” of the bank’s commitment in this area.

“We want to be able to serve big clients looking to invest US$5 million but also clients that may be looking for a US$50,000 investment,” says Gil. “Some clients are happy to operate via email and others prefer to do it through the BBVA Portal in the Bloomberg terminal or on the web pricer that we recently launched.” 

The goal is to be able to service all clients and all products and you can only achieve this with an scalable platform that offers options to the end client and that can respond to the needs of investors either by phone, email or a web portal, according to Gil.

“We’re now in a position where clients can transact with us structured products with a click,” he says. “This is helping us to speed up processes and save time – all the admin is automated so we can focus on our clients. There is an increasing shift towards automation across the industry and we must invest to remain competitive and be able to expand.”

Volumes have picked up and we’re almost at pre-Covid levels

Gil believes technology will play a key role in the bank’s strategy to increase its presence in the flow side of the market where products have become commoditised, as well as to democratise the use of these products and make them easy to access for clients.

“For this we need a comprehensive offering in terms of underlying and payoff structures, and a platform to service our clients in a customised way,” says Gil. “In this environment you have to be agile, and able to offer low ticket products.”

In the institutional side of the market, the process is different as issuers engage with clients more as solutions provider “so relationships are important as you are talking about big tickets, and ad hoc trades and there are other factors at play such as price competitiveness, the post-trade service you offer, etc.” 

Market crash

From a client perspective, the market crash did not significantly changed how clients have behaved. Despite the drop in volumes between March and May, clients continued to invest in structured products.

“Volumes have picked up and we’re almost at pre-Covid levels,” says Gil. “This suggests the market is mature and healthy from a demand perspective.”

At an issuer level, there was some damage across the board with a number of banks now reviewing the way they approach their structured products activities.

“This is a great opportunity for us because we have the structuring capabilities and reach, and we can fill the gap left by some of those banks retreating and scaling down their activities in the market recently,” says Gil, adding that the market crash has also exposed a few other issuers that had too much risk in their books – i.e. autocallables, dividends.

“There will be a re-distribution around the products offered and some of those issuers will have to diversify their offering too. The scope to grow in this environment is significant. BBVA’s brand and credit rating is good and there is no overexposure to our paper across private banking and distribution channels so we believe we can take advantage and increase our market share.” 

Payoff concentration

At a product level, the market seems to have reached full capacity and is coming to terms with its over-exposure to the autocall/knockout payoff profile.

“[This payoff] has been a very popular structure over the last few years, but it has grown to be a threat for some manufacturers,” says Gil. “In Asia the damage has been bigger but there are also banks in Europe not quoting long-term autocalls which gives you an idea of how these products are now perceived by some in the market.”

The almost 100% industry focus on autocalls has created an unbalanced situation and the last market crash should be a lesson for the whole industry.

“We believe there is scope to continue bringing value to investors with other structures and we want to leverage our structuring capabilities too to bring new ideas and products to the market,” says Gil. “It’s not going to be easy as some distribution channels are completely dependent on this structure but it is also our responsibility to bring value to the market because otherwise the market is going towards a one-size-meets-all kind of approach.”

Despite the market turmoil and uncertainty equities will continue to be the main driver for structured products but there is scope around FX and credit structures.

“At the moment CLNs are not pricing well because credit spreads are very low as a result of central banks funnelling money into corporate bonds and investors would have to take too much risk to get a meaningful coupon,” he says. “However, we see CLNs as an efficient instrument to get exposure to credit and we think they will be part of our clients’ portfolios as they move to diversify their exposures as well.”

Going forward

The focus for the short term will be in growing its presence in Europe and the US/Latam, and then look into increasing the Apac footprint.

“We also see diversification as a key risk management approach so we want to go beyond structured products and enter other areas where there is demand and we can deliver value,” says Gil. “Two areas of focus for us are ESG and QIS - we’re working with fund managers to develop new strategies that meet specific needs. The focus is also on building a stronger flow derivatives business through its synergies with the structured products business and hence offering a better service to our clients.”