How has the securities finance business changed in response to the current regulatory landscape? How will Natixis continue to grow in this environment?
We have seen some significant changes in recent years. The securities finance business is not only working through the implementation of new regulations, but it is also dealing with the uncertainty of how these regulations will evolve going forward.
While all banks will be affected, each one must deal with these issues differently. For example, while it may be more difficult for larger banks to restructure their platforms, mid-sized banks have the advantage of being able to adapt more quickly and creatively.
Natixis is the international corporate, asset management, insurance and financial services arm of Groupe BPCE, the second-largest banking group in France.
Within the Corporate & Investment Banking (CIB) division of Global Markets, we offer a true cross-asset financing platform, including equities, credit and fixed income, all on one platform, with a focus on innovative products that address clients’ balance sheet, liquidity coverage ratio (LCR) or regulatory reserve requirements.
With a unified vision we are well positioned to address the evolving financing needs of our clients.
How does the centralized model offer advantages?
Traditionally, banks have dealt with each type of financing (for example, equities and treasuries) through different groups.
This structure makes it very difficult to deal with clients’ multidimensional financing needs and is highly susceptible to inefficiencies across the business units. In a true cross-asset platform, such as we have at Natixis, clients have the advantage of a single point of contact for all of their global markets financing needs.
This allows us to provide our clients with innovative solutions while increasing internal efficiencies and driving growth within the evolving framework of liquidity and capital restrictions.
Capital and balance sheet restrictions have put pressure on the financing capabilities of traditional prime brokers. How is this creating an opportunity for new funding solutions?
The increasing capital burden and finite balance sheet are forcing prime brokers to optimize their client bases more than ever.
As banks have become more critical about how they allocate their balance sheet, hedge funds are now facing pressure to optimize their own collateral use and prime broker allocations while maintaining adequate diversification of credit risk.
Increasingly, funds have taken it upon themselves to diversify their assets and risk from their prime brokers, creating new opportunities for a bank with a high credit rating such as Natixis that can offer non-traditional funding solutions.
What has been the main driver of securities finance and will that change going forward?
Cost has been the main driver of securities finance – this will not change. What will change is the way in which firms of all types (banks, hedge funds, pension funds, insurance companies, sovereigns and corporations) optimize the use of their various assets.
With the ability to manage all asset classes on a central platform, we are able to maximize internal efficiencies and take a highly quantitative approach to providing customized financing solutions across all asset and client types.
Can you elaborate a bit more on the capabilities of a centralized, cross-asset financing platform?
The recent trend in securities lending towards more non-cash transactions to help manage balance sheet usage provides a good example.
The expanding need for non-cash collateral has in turn led to a significant increase in collateral upgrade or downgrade transactions. A centralized platform makes these transactions very easy to execute. We can efficiently move different types of assets internally and across all clients.
Hedge funds, for example, are realizing that if they trade several asset classes it helps to have a single point of contact that can provide innovative, cross-asset solutions. However, this is only part of the picture.
In addition to hedge funds, the next evolution includes pension funds and insurance companies – and after that, sovereigns and corporates. These new client types will bring a different set of needs that will continue to require the ability to be nimble and innovative.
Besides the centralization of securities financing, what other trends that you are seeing?
Market transparency and the movement towards central counterparties, which provide credit risk reduction and balance sheet relief, continue to be a strong force.
Securities lending has always been a valuable tool, but today it is only a part of the growing set of financing structures. Collateral upgrades and downgrades are becoming more and more common. The trend towards synthetic long and short financing also continues to gather steam.
Can you give us a sense of your global capabilities?
Our global securities finance coverage continues to grow in New York, Paris, London, Frankfurt, Hong Kong and Tokyo. Part of having a successful centralized, cross-asset financing platform is also having the capability to provide solutions across geographical regions.
What can we expect for the rest of 2017 and beyond?
The securities finance market will continue to be influenced by the need for optimization and innovation in the ever-changing regulatory landscape.
While many regulations have been restrictive in nature, they have also created new opportunities. The ability for banks to be nimble and provide one stop, cross-asset financing to a wide range of clients will be critical.
Anand is responsible for developing and leading all securities finance activities in the Americas, including Equity Finance; Government, Agency & Corporate Repo; and Structured Credit Repo. Anand has more than 15 years of financial services experience.
He joined CIB Americas from Deutsche Bank, where he had worked for more than eight years, most recently as Global Head of Global Prime Finance (GPF) Client Analytics & Portfolio Strategy and Head of Financial Resource Management – North America.
Prior to Deutsche Bank, Anand worked at ING Financial Markets, Wachovia Bank and Lehman Brothers. Anand holds an MS in Computational Finance from Carnegie Mellon University, an MBA in Finance from the University of Bridgeport and a Bachelor’s in Applied Sciences from Coimbatore Institute of Technology (India).