BORROWERS RATING LENDERS
Nordea is the most highly rated lender in the Nordic region, according to the unweighted responses of borrower counterparts. Nordea took the overall unweighted crown from Svenska Handelsbanken, having increased its unweighted score from 5.58 to 5.72 since last year.
Svenska Handelsbanken retained its crown in the weighted category, once respondents’ book sizes were taken into account. Its winning score in the weighted category increased from 7.79 last year to 8.72 this year. Despite the jockeying for position around it, SEB retained its second place in both the unweighted and weighted tables.
Nordea retained its third place in the weighted table, while DNB moved up a place to secure third in this year’s unweighted table. Nordea’s winning overall unweighted score was underpinned by five (one joint) winning scores in the category tables and eight second place scores (from a total of sixteen categories). Interestingly, second- placed SEB topped five tables but came second in just one. Nordea claimed the top overall unweighted score by consistently achieving high ratings across all service categories (it also received two third places and two fourth places).
Borrower analysis
The borrowers in this survey were predominantly focussed on equities. On average, 85.7% of business was of this type with the remaining 14.3% in fixed income. The total value of borrowers’ books was skewed to the lower end of the scale. Those with books of $10bn or smaller accounted for 45.2% of respondents; $10bn-50bn books for 12.9%; and $51-75bn and $76- 100bn accounting for 6.5% each.
There were also some huge borrowers; those with $100+bn books accounted for almost a third of the total, 29%. In each of the Nordic countries, respondents were most likely to have five or fewer counterparties. In Norway this was overwhelmingly the case, with 69% of respondents using five or fewer. The next most numerous category was for having 16 or more counterparties, accounting for 20.7% of respondents.
For Sweden, respondents had even fewer counterparties; respondents with five or fewer counterparts accounted for 72.4%. Again, the second most numerous category was 16 or more, but accounting for a smaller group of 13.8% of respondents. When operating in Finland, the number of counterparts was more evenly spread between one and 16+. Less than half, 45.8%, of respondents had five or fewer counterparts and 16.7% had more than 16. The final country, Denmark, had a concentration of counterpart numbers near the average for the Nordic region.
Those that had fewer than five counterparties in the country accounted for 60.9% of respondents and those with more than 16 accounted for 17.4%. When respondents were asked how many counterparts they used globally, these were understandably much more numerous. In a rough reversal of the country- specific figures, 65.4% of respondents used more than 16 counterparties globally while just 19.2% had five or fewer. Respondents were asked to estimate how much of their business was conducted via exclusives, to the nearest 10%.
The most common estimate was for 10% to be conducted via exclusives, accounting for 40% of respondents. The most common estimate beyond that was 50% (accounting for 20% of respondents), then 20% (accounting for 13.3%) and 100% (accounting for 10%). None of the respondents did no exclusives. The amount of exclusive business was steady, with 74.2% doing the same amount as a year ago and 12.9% both increasing and decreasing the amount. The respondents were asked how much client choice is driven by the type of collateral they accept.
The most common response was that it was a “significant” driver and “very important”. This was especially the case for general collateral (GC) business. One respondent said: “Client collateral type and variety is now extremely important with greater flexibility in collateral schedules driving trading decisions over the actual upfront fee charged.” This was not universal, however, as another respondent said: “It would impact our choice more if there were more lenders with more extensive collateral profiles. However, at the moment this is limited.”
In terms of increased opportunities in the region, 39.1% respondents considered increased M&A activity as a contributing factor and 8.7% hedging requirements –52.2% cited a combination of other factors. Institutional investors’ involvement in corporate AGMs was detrimental to business, however, with 54.8% saying it had a negative effect, 41.9% saying it had no effect and just 3.2% saying it had a positive effect. Respondents were asked to rank how important each service category was to them (the same categories that were used to judge their counterparties).
The sixteen categories were on average ranked in the following order of importance:
• Breadth of supply
• Stability of supply
• Market capability
• Responsiveness to locate
• Operations: trade support/settlement
• Relationship management
• Product knowledge
• Collateral flexibility non-cash
• Operations: corporate actions
• Operations: collateral management
• Collateral flexibility cash
• Trading: connectivity and automation
• Operations: automation
• Operations: fees and billing
• Operations: income/dividend collection
• Global coordination
Borrowers overwhelmingly voted for EquiLend as the trading platform of the year, with it reaping 46.7% of preferences. The runner up platform was Bloomberg, with 26.7%. Both Tieto and in-house solutions secured 10% while Global 1 got 3.3%. The technology solution category was even more clear-cut. EquiLend again won with 48.3% of the votes. The runner up was Bloomberg with 27.6%; then Tieto with 13.8%; in-house received 6.9%. The market data provider of the year was Data Explorers, securing 46.4%. Next spot went to Bloomberg with 35.7%; Lending Pit (SunGard Astec Analytics) with 10.7%; and Reuters picked up 3.57%.
LENDERS RATING BORROWERS
SEB is the highest rated borrower in the Nordic region. This result was conclusive as SEB topped both the unweighted and weighted categories and represents a real improvement for SEB. While it also won the weighted category last year, it jumped from third place to first in the unweighted category and improved its score from 5.56 to 5.90 (0.1 higher than last year’s winning score). The improvement was enough to push last year’s unweighted winner DNB into second place.
On the plus side for the firm, however, it climbed from third to second place in the weighted category. SEB’s unweighted score was attained due to its performance across the service category tables. It achieved top spot in seven (two shared) of the 12 categories and also got three second places. DNB’s second place in both the unweighted and weighted categories was accomplished by achieving top spot in eight of the service categories (two shared), although it was second in none.
Nordea achieved seven second places and five third places. Its overall unweighted score of 5.52 is significantly higher than last year’s equivalent of 4.80. Overall, it seems standards have increased across the board.
Lender analysis
The size of average borrow books were heavily biased to the lower end; those with books under $10bn accounted for 72.7% of respondents. The types of collateral that lenders have accepted over the last year were largely to be expected.
Government bonds, equities, cash ($) and cash (€) were all very widely accepted. Around half as many accepted investment grade corporate debt and other forms of cash. Letters of credit were very rarely accepted and convertible bonds were not accepted by any of the respondents. While a variety of forms of collateral were accepted, the proportion of business that was conducted in equities was 90.9%, with the remaining 9.1% done in fixed income. The other forms of collateral remain more theoretical than integral to the business. Lenders were asked the approximate percentage of their business was conducted via exclusives.
As with borrowers, the most common amount for lenders was 10% (27.27% of respondents). There was a relatively even spread among proportions of business conducted this way, with 30%, 50% and 80% each accounting for 18.2% of lenders. All other levels received accounted for less than 10% of lenders. The direction of exclusive arrangements was broadly similar to that of borrowers, with 72.7% of lenders reporting that levels stayed the same. However, the remainder reported that exclusives had increased. Lenders considered that institutional investor involvement in corporate AGMs had less effect on business than borrowers.
While 45.5% said that it had no effect on business, a much smaller 36.4% said that it affected business negatively and 18.2% even said it had a positive effect. Lenders saw a disparate variety of factors increasing opportunities in the region. Increased M&A activity was mentioned by 20% of lenders, but beyond this trends were not significant. Lenders were asked how many counterparties they dealt with in each of the Nordic countries. As with borrowers, lenders dealt most often with five or fewer counterparties but the spread was far less pronounced.
In Norway, 60% of lenders dealt with five or fewer counterparties, and the remaining 40% was spread evenly between six and ten counterparties and more than 16 counterparties. When operating in Sweden, 44.4% lenders use five or fewer counterparties; 22.2% use between six and ten; 11.1% use between 11-15; and a further 11% use 16 or more. In Finland, which was the least well represented country on this side of the survey, and in Denmark, there was an even distribution across the bands.
As with borrowers, lenders used many more counterparties globally, with the 11-15 and 16+ counterparties bands accounting for two thirds of respondents. Lenders were asked to rank a list of 12 factors in order of importance when it comes to relationships with counterparties.
In decreasing order of importance were:
• Market capability
• Breadth of coverage
• Relationship management
• Product knowledge
• Operations: trade support/settlement
• Operations: collateral management
• Trading connectivity and automation
• Global coordination
• Operations: corporate actions
• Operations: fees and billing
• Operations: automation
• Operations: income/dividend collection
Lenders were also asked about their favoured platform provider. Exactly half of all respondents selected Bloomberg. The platform that received the next highest amount of preferences was EquiLend, on 30%, followed by Global 1 (and in-house solutions) on 10%. Likewise, lenders selected Bloomberg as their favourite technology provider – but this time on an overwhelming 70% of votes cast. EquiLend again took second place on 20% and Tieto garnered 10%.
As for the borrowers side, the vast majority of lenders (66.7%). chose Data Explorers as their preferred data provider, while Bloomberg took second place on 22.2% and the remaining votes were scattered around other options.
METHODOLOGY
This survey ranks securities finance firms based in the Nordic countries of Denmark, Norway, Sweden, Finland and Iceland (and their associated territories). The survey is split into two sections: borrowers rating lenders and lenders rating borrowers. Each section has its own bespoke questionnaire. All responses are anonymous and held in confidence.
CATEGORIES
Respondents are asked to rate their counterparties across a range of service categories, between extremely bad (1) to extremely good (7). The scores in category tables are a simple unweighted average of all responses for that counterparty.
Lenders rate borrowers across 12 service categories. These are:
• Breadth of coverage
• Global coordination (effective communication between teams globally)
• Market capability
• Product knowledge (trade structure/ pricing/product complexity)
• Relationship management
• Trading connectivity and automation
• Operations: automation
• Operations: collateral management
• Operations: corporate actions
• Operations: fees and billing
• Operations: income/dividend collecion
• Operations: trade support/settlement
Borrowers rate lenders across 16 service categories. These are:
• Breadth of supply
• Collateral flexibility cash
• Collateral flexibility non-cash (types of collateral/duration)
• Market capability
• Global coordination (effective communication between teams globally)
• Product knowledge (trade structure/ pricing/product complexity)
• Relationship management
• Responsiveness to locate
• Stability of supply (recall risk/consistency)
• Trading connectivity and automation
• Operations: automation
• Operations: corporate actions
• Operations: collateral management
• Operations: fees and billing
• Operations: income/dividend collection
• Operations: trade support/settlement
QUALIFICATION
A counterparty is required to receive a minimum of three responses for inclusion in each of the category and overall tables.
OVERALL: UNWEIGHTED
Overall tables combine the responses from all countries and all respondent types. A counterparty’s score is the average of all its category scores. Therefore, as with category scores, marks are expressed out of a maximum score of seven.
OVERALL: WEIGHTED
These tables give greater weight to the views of clients with larger borrow/ lending books. First, the respondent’s category scores are averaged for a particular counterparty. This average is then multiplied by a weighting dependent on which band the book size of the respondent falls in. The weightings were attached accordingly:
Less than $10bn: 1
$10-50bn: 1.25
$51-75bn: 1.5
$76-100bn: 1.75
Greater than $100bn: 2
Note: this is a minor adjustment to the previously published methodology
OVERALL: WEIGHTED BY IMPORTANCE (ONLINE ONLY)
Respondents are asked to rank the importance of each of the service categories. The rankings of all respondents are then averaged. These average ranks are then used to create a weighting for each service category, which theoretically range between 0 and 2 but will depend on the actual responses. For example, if on average respondents consider ‘market capability’ to be the most important category it will be given the greatest weighting when calculating the scores.