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Global Markets

Global Markets:
maintaining leadership
in credit derivatives*

Global Markets: maintaining leadership in credit derivatives (bar chart)

Global Markets undertakes the sales, trading and structuring of a wide range of financial market products, including bonds, equities and equity-linked products, exchange traded and over-the-counter derivatives, foreign exchange, money market instruments, securitised instruments, and commodities. Coverage of corporate and institutional clients is provided by Global Capital Markets and the Institutional Client Group. Global Markets Research provides world-class analysis of markets, products and trading strategies. The origination, underwriting and syndication of debt and equity securities are managed jointly by Global Markets and Corporate Finance.

Massive and coordinated government intervention in the early part of the year did much to restore investor confidence and contributed to a surge in activity. Volatility declined, credit spreads tightened, liquidity in the markets improved and relationships between asset classes returned to more normalized levels. Even so, the markets for securitisation remained largely inactive and correlation between asset classes remained high. As the year progressed, the volumes of trading and origination, as well as margins, reduced from the exceptional levels seen at the beginning of the year.

Against this backdrop, Global Markets successfully recalibrated, de-risked and deleveraged while gaining market share and generating record revenues. We dramatically reduced our use of resources, taking painful but necessary steps to cut headcount by almost a third from peak levels, and cutting risk-taking and balance sheet usage by more than half.

Fundamental to our efforts was a complete change in our approach to credit and equities, the asset classes most affected by the crisis of the past two years. We re-oriented our business away from proprietary trading and illiquid risk retention to focus on highly liquid, volume-driven platforms with excellent institutional relationships and the ability to structure effective client solutions. We created a world-class structuring platform and increased our ties to our biggest clients.

Global Markets:
world leader in foreign exchange

Global Markets: world leader in foreign exchange (bar chart)

Awards 2009 Euromoney
“FX Poll - No 1 FX Bank”
“Best Risk Management House of the Year”

International Financing Review
“Derivatives House of the Year”
“Investment Grade Corporate Bond House of the Year”

International Financing Review Asia
“Bond House of the Year”

Risk 2009
“Inter Dealer Poll - No 1 Overall Bank”

Our recalibration efforts paid off. We consolidated our leading position in foreign exchange, money markets and interest rate trading. In commodities and emerging market debt-trading, as well as electronic trading, we were particularly successful. As a result, we extended an eight-year run in which we have outperformed almost all of our leading competitors.

Foreign exchange sales and trading continued to be one of the strongest contributors to earnings over the year as we cemented our position as the top FX provider for a fifth year, according to Euromoney. Money markets also played a significant role in revenue generation, capturing opportunities during the volatile markets of the early part of the year. Our interest rate trading business had a record year, buoyed by investments in client-focused technology and innovative solutions.

Our credit business generated excellent underlying revenues while substantially reducing holdings of legacy assets. Having shut down dedicated credit proprietary trading, we were able to re-deploy resources within institutional client-facing flow businesses. Emerging market debt also staged an impressive recovery as our depth of geographic penetration paid off in better than expected markets.

Commodities trading continues to be a strategic priority and enjoyed a strong year, improving its capabilities through a new office in Calgary. Our equities business, meanwhile, captured market share in both cash and prime brokerage, where we were voted world’s top prime broker for a second year by Global Custodian. We shifted the focus of our equity derivatives platform towards institutional flow derivatives and increased our return on resources in the slimmed-down dedicated equity proprietary trading unit.

Looking to 2010, the industry is likely to face a more rigorous regulatory environment and a return to more normal margins and volumes. At the same time, however, the levels of de-risking and trading-related losses are unlikely to be repeated. Clients’ needs to strengthen their financial position also present extraordinary opportunities. We believe we are well-positioned for success in 2010.

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