As it rebuilds its capabilities of its structured products business CACIB is seeking to capitalise and tap into a number of opportunities in fixed income thanks to what CACIB sees as the 'equitisation' of this asset class.
In the second part of an interview, Samy Beji, global head of structuring and product development and Eric Etienne (pictured), global head of non-linear trading at Crédit Agricole CIB, talk to SRP, among other, about payoffs, regulation, automatisation and digitalisation processes and the bank's partnership with technology platform Orchestrade Financial Systems.
"We have seen payoff used in equity markets such as autocall or reverse convertible being deployed on FX, rates and commodities structures," says Beji, adding that fixed income structured products are trading faster thank to platform digitalisation while the development of smart beta and quantitative investment strategies have also opened up new avenues for growth.
"On the latter, we welcome the benchmark regulation because it makes it clear how to address conflicts of interest so there is no confusion in the market any more around the calculation and publication, and what is acceptable from index administrators," says Etienne. "This transparency will also help investors to understand how the index is constructed and how it works."
The green bonds segment (self-issuance and third party) has been embedded in the bank's strategy for years, and the bank continues to be an active supplier in the institutional segment and is working to expand the range and leverage its structuring capabilities to develop index-linked strategies. CACIB became in mid-July the first foreign issuer to be accredited by the Taiwan exchange for the issuance of green bonds.
"Proceeds raised by those Crédit Agricole CIB Green Notes will be deployed to refinance the bank's green portfolio, composed of loans to entities and projects, demonstrating both good environmental and social performance, and belonging to key sectors for the transition to a more environmentally-friendly economy," says Beji. "Being a leader on green bonds, it's a logical move for us to develop our hybrid and index-linked capability. Our recent successes on the Uridashi market and the Taiwanese markets paves the way to serve investors more globally."
According to Beji, this segment also lends very well to the 'equitisation' trend in the fixed income space and the fact that "banks are no longer selling products only but a service and a story".
Another factor that could speed up the rebuild of CACIB's structured products business is the automation and digitalisation of processes around the flow business, according to Beji. "The regulatory framework is taking the market [towards automation] with a push to electronic platforms and multilateral trading facilities (MTF)," says Beji. "However, it is to be seen if the non-flow business of the structured product market will eventually follow. That's the next big question. We are somehow surprised that multi-issuer platforms have not developed as expected but Mifid 2 might be a catalyst for development."
CACIB also wants to capitalise on its reach and global footprint to retain an edge in the market and provide value and access to investors and clients. "Our main edge is that CACIB has a global reach," says Etienne, adding that having a local set-up in Asia Pacific allows the bank to have a presence and trade in Korea, Taiwan, China on-shore, and Singapore. "The cost of entry has become higher and being able to operate from fully licensed entities in these countries gives us an edge compared to our peers."
CACIB's coverage is relatively balanced between France, Europe, Middle east & Africa (Emea), Asia-Pacific and the US, according to Etienne. "This global set-up is key in the structured product world as it enables you to find natural hedge for exotic risk across geographies hence being more competitive," says Etienne. "In the US we are investing in our capabilities and we appointed recently Sebastien Lafosse to spearhead the build-up of our retail platform in that market."
The French bank saw 2016 as a consolidation year in the non-linear world as it rebuilt its capabilities and delivered a strong performance, according to Etienne. "This was further proof that our strategy was the right one," he says, stressing that the structured products division is now well established within the Group. "There is a lot more understanding of structured products as a source of funding but also as a way of serving clients and responding to their investment needs."
According to Etienne, so far 2017 has been "a very positive year" for CACIB. "At a product level there was not a lot of innovation but we were able to re-enter a number of pay-off structures and increased our activity for example in the FX rates correlation space," says Etienne. "We continue to improve our relevance to the entities of the Crédit Agricole group and we want to expand to cover external institutional and retail clients."
As part of the process to revamp its internal systems and processes CACIB partnered with Silicon Valley-based capital markets technology platform for cross-asset trading and risk management Orchestrade Financial Systems to replace its trading and risk legacy systems, overhaul its interest rate derivatives and FX forwards trading operations, and migrate all front-to-middle office processing of vanilla and structured products from two legacy platforms.
On the management side, the French bank also hired Carlo Maria Galli as head of investment solutions sales within the bank's global marked division reporting locally to Giuseppe Greco in his capacity of head of fixed income sales, Italy, and globally to Algis Pabarcius, global head of financial institutions sales. Galli joined CACIB from Unicredit where he held a number of roles since 2010 including head of private investor products and public distribution, and head of equity & fund derivatives sales for Southern Europe.
The French investment bank has issued over 1,320 structured products across jurisdictions of which 259 are live products, according to SRP data. Credit Agricole's top three markets in terms of issuance are France, Italy, and Japan. The French bank has also 13 live structured notes in the US market. In France, Credit Agricole finished third in the 2016 issuers ranking behind Societe Generale and BNP Paribas with 34 products issued but was the highest seller with the overall 2016 sales volume standing at €2.1bn. YTD, CACIB is the fourth most active issuer in France with 34 products but the second in terms of sales with over €2.6bn sold.
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