will be a year of transition before the equity market recovers

BBVA Investment Solutions is still in build-up mode and developing its offshore and onshore footprint in the Americas with a special focus in the US market, Mexico, Peru and Colombia where the bank wants to leverage its internal commercial networks.

In Asia Pacific, Singapore, Hong Kong and South Korea remain a focus for the Spanish bank as the bank believes there is scope to establish its brand and room to grow the structured products business.

In Europe, the bank will continue to cover the UK and Switzerland from its London desk, with the Paris team servicing France and Benelux, the Dusseldorf desk servicing Germany/Austria and Eastern Europe, and Madrid covering Iberia.

“We are now entering a new phase where the depth of our offering and our brand allow us to have a different conversation with bigger clients. It is very rewarding to see how big global tier one private banks have onboarded on the ePricer platform,” said Daniel Hernandez (pictured), head of e-connectivity sales at BBVA.

GAME CHANGER

This will be a game changer for the Spanish bank as it will be entering a pool of billions of assets across markets.

“This shows we are going in the right direction to match the offering of some of the bigger players in the structured products market,” said Hernandez. “We are now part of a group of leading banks in the structured products market serving premium clients when it comes to pre- and posttrading, and pricing and execution. There is demand for these products and our platform is scalable.”

BBVA is not looking to cover all products/clients/jurisdictions, but it has a roadmap with “a clear growth plan based on establishing a strong foothold in key markets and expanding the product suite to reach more and bigger clients”.

“The goal now is to consolidate that presence and become a leading provider by responding to the needs of these clients in a more competitive environment,” said Hernandez, adding that the overall market sentiment going forward is 50/50 on the basis that after a tough year there could be a shift in client activity and the market remains well positioned to move forward.

“We think next year will be a year of transition before the equity market shows signs of a full recovery and we see a strong return of flow products.

“The position of structured products is not being challenged by any other type of investment (mutual funds, ETFs, fixed income bonds) and will remain a consideration for any investment portfolio going forward. Our growth and offer in FX and credit structured investments arena will allow us to continue expanding our business.”

Market Trends

At a market and product level, Hernandez confirms the transaction volume has fallen because rollover levels have dropped as a result of many autocall structures not calling this year.

“There is less new business across the board and less concentration on autocalls. However, the data going through our platform shows that the behaviour of distributors on equity RFQs has not changed,” he said.

Autocall and Phoenix structures continue to be at the top of the RFQ list with a slight increase in RFQs on participation products with some kind of leverage /booster features, as well as twin wins and reverse convertibles, according to Hernandez.

“If 75% of the RFQs were on autocall/Phoenix structures last year, this has come down to 50% this year,” he said. “We don’t see a big shift to other products but a slowdown in autocall issuance because of the lack of rollover money.”

However, Hernandez points, in the current environment there are few investment products that can offer as much flexibility as structured products and can offer real value – low strikes, and high vol with potential for upward or sideway moves.

“It comes as no surprise to BBVA that the level of RFQ activity remains high despite the reduced number of trades – an advisor with five autocall in its portfolio below 50% of their value doesn’t have room for new products,” he said. “New business is coming from big private banks that are looking at structured notes for the first time.”

According to Hernandez, the trend is different from previous market cycles in that the activity has remained steady –but the product mix has not changed much in terms of underlyings either.

“With the current interest rates environment, we are positive as there is more room to play with options budgets and capital protection becomes a real selling point,” said Hernandez. “Being able to get exposure to the market for three to five years and protect your capital is a no brainer. As the market recovers, rollover money will return to the market and stabilise the volumes.”