Winner: Citi

As long as there has been a capital relief trades market in the US, Citi has been there. But its presence in the market has more than a historic significance. In the tombstones for a high percentage of the deals for US issuers in 2020/2021 - from the ground-breaking Texas Capital Bank trade to bilateral transactions which never hit the headlines - the name of Citi can be found.

The bank first began issuing capital relief trades for its own account in 2007 and took the skills it had learned as an issuer to clients four years later, when it completed its first trade as a placement agent in 2011. Its debut as an arranger was in 2016.

So Citi has longevity and experience in this market that others perhaps lack, and it is also gaining market share. Observers say that from the perspective of an increase in the number of mandates won in the last year, Citi deserves to be called the ‘most improved.’

“We’ve been doing CRT deals for our own balance sheet since 2007. I think that says a lot. We’re always looking to open up new jurisdictions for other banks and have been an active arranger across US, Europe and Asia,” says Alexis de Vrieze, director, bank solutions, EMEA at Citi.

Of course, the jurisdiction that everyone is talking about at the moment is the US market. After years of talk, the dam was finally breached in March 2020 when Texas Capital Bank became the first US regional to issue a capital relief trade, with Citi as its partner.

Citi sees as one of its major strengths its capacity to be the midwife for innovative, first-time deals. The big question now is whether that trade will be followed by others.

Mark Kruzel, director, bank solutions, Americas at Citi, believes so. “That transaction opened the door for us to build the US market to be the same size as Europe. We’re going to see a tremendous growth in terms of opportunities, deals, issuers and it’s going to make things even stronger on both sides of the pond,” he says.

Citi’s expertise and careful stewardship were keys to the success of the Texas deal. The bank had been looking to find a cost-effective way to gain capital relief on its mortgage warehouse loan portfolio, but it was Citi which shone a light into the darkness when it approached Texas Capital, say sources, in the spring of 2020.

The main difficulty for Citi was being able to satisfactorily detail the credit story behind the deal to potential investors. Warehouse loans are straightforward in theory, but operationally quite complex as the portfolio tends to be dynamic and fast-moving.

The bank is a strong credit, and yet this trade was to be unrated. Moreover, US investors are relative ingénues to the US market.

Yet Citi was able to satisfactorily clear these hurdles, and bring, it is believed, two investors into the trade. It also introduced the issuer to Clifford Chance, which also has plenty of experience in the CRT sector.

The US market is still in its infancy, and much of the work to be done is in building an investor base. But Citi strongly believes this can and is being done.

In particular, there will be a market for unrated trades in the future, and this is where Citi’s experience and market savvy comes to the fore. It takes a deep understanding of the sector and how these deals operate to sympathetically elucidate the mysteries of such transactions to wary and uncertain buyers.

“If we had restricted ourselves to only rated deals, a number of the transactions we’ve done would never have happened. There is now a large investor base in Europe and in the US for both equity and mezzanine risk,” adds Kruzel.

Texas Capital Bank securitised warehouse loans, as did Western Bank Corporation at the end of June, but other asset classes have great potential in the CRT market, believes Citi. JPMorgan has issued trades which have securitised auto loans, mortgages and corporate loans, but other US banks have also executed less well-reported deals in emerging markets corporate loans, shipping and subscription finance.

As the granddaddy of the US CRT market, Citi is optimistic about the future. “Next year, we as a firm want to continue to see growth. We want to work with new clients and new asset classes. The stars are aligned for healthy growth,” predicts Kruzel.

Honourable mention: JPMorgan

JPMorgan has been a prolific presence as an issuer of capital relief trades in the last 12 months with a hatful of deals securitising a variety of different asset classes. But it has started to operate as an arranger as well and was, for example, spotted as the shepherd of Western Bank Corporation’s debut warehouse loan CRT at the end of June. JPMorgan has worked its way up the league tables and is now mounting a challenge to veteran Citi as the leading arranger of CRT trades for North American issuers.