UBS, Nomura battle to sell rate products to Europe’s ultra rich

UBS Group and Nomura Holdings are making a push to sell sophisticated fixed-income products to the ultra wealthy in Europe, competing against firms such as BNP Paribas.

Switzerland’s biggest bank has been adding to its structured rates offering over the past six months. After reducing its fixed income footprint in 2012 to focus on less capital intensive business lines, UBS is capitalising on the expertise it acquired in last year’s rescue of Credit Suisse to consolidate its offering of complex rates products to its vast pool of wealth management clients.

Nomura, Japan’s largest brokerage, is also stepping up sales of products such as credit-linked notes, floating-rate notes and inflation-linked bonds to high net worth individuals in the region via private banks, according to executives. Efforts began in Switzerland and the bank is looking to expand into France, Luxembourg, Italy, the Nordics and Portugal.

The most aggressive global interest rate-hiking cycle since the 1980s has sparked a renewed attention on fixed income products from ultra-high net worth individuals and family offices, the firms say. But the space is increasingly competitive, with many banks including BNP Paribas active in the market. BNP declined to comment.

“Since rates went down dramatically in the last 10 years these products disappeared a bit, and now they’re back,” Marco D’Agostino, Nomura’s co-head of global market solution sales for Europe, the Middle East and Africa, said in an interview.

“Wealthy people want to have a cash-type instrument which gives them a fixed income.”

At present, clients can get a steady income of between 5 per cent and 8 per cent on many rates or credit linked products, according to Nomura executives.

Nomura has added about 45 new private banks and distributors to issue these products and is looking to introduce more. It marks a push beyond its traditional client base of insurers, hedge funds and asset managers.

The bank’s distributors have been registering with national clearing houses and signing up note issuers to local stock exchanges. Meanwhile, Nomura is updating its technology to deal quickly with distributors’ requests and provide instant pricing by email.

“There’s been a lot of investment to be able to deal with those requests quickly and so they feel like they’re dealing with one desk, not multiple desks,” said Ben Hammond, managing director for credit structuring.

“Where there are large private banks trading out of both EMEA and Asia they want to see consistent price and consistent service.”

Bespoke products

Meanwhile, UBS Investment Bank has been working to integrate Credit Suisse’s macro structuring offering into its rates business.

Adrian Bracher, who spent two decades selling structured rates products predominately to Credit Suisse’s institutional clients as well as wealth management clients, is spearheading the strategy to widen the offering to UBS’s wealth clients.

“We’ve brought additional knowledge, resources and manpower over to UBS from Credit Suisse,” Bracher said in an interview.

“The business case is clear, UBS wants to grow its wealth management business with the best in class products.”

Bracher said the rise in central bank rates over the past couple of years has fuelled interest in bond products from ultra rich clients, who typically focused more on stocks during the years of near-zero rates.

The firm tries to offer equity-like payoffs through products including reverse convertibles on government bonds and range accruals on short dated interest rates, he said. Client growth has been strongest in Europe and Asia.

“It’s a competitive business but the more bespoke you get, the less others can replicate what you are doing,” he said.

“It requires complex technology and this comes at a price – some would rather focus on more standardised products where they can utilise a big machine, rather than have a large number of individuals dealing on a case by case basis.”

At Nomura, executives see now as the right time to expand, in light of elevated interest rates across numerous major economies.

“The rates wall is famously high at the moment and that absolutely contributes to the appeal and makes a special product like callable and credit link notes a once in a decade chance,” D’Agostino said.

“We have been trying to be the house to go to for fixed-income products offering innovative pay-out both in structured credit and structured rates.” BLOOMBERG