Treasury Today Country Profiles in association with Citi

Banks facing debt capital market disintermediation

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Issuers are calling for highly transparent and efficient access to debt capital markets. With banks facing stiff competition from digital platforms, and new regulations on transparency, an innovative web-based market place for issuers and borrowers aims to disrupt the capital markets.

“There is a risk of disintermediation in new issues and it’s something that the banking industry needs to be conscious of,” said one global head of debt syndicate, quoted in a 2018 Bloomberg paper on the coming of the robots in the corporate bond market.

With the digital disruptors already impacting the way equities, currencies and even some government debt are issued, Bloomberg argues that the last bastion of resistance is the syndicate desk, where corporate bonds are priced and distributed.

With global corporate bond sales growing to record levels last year (to well over $2trn), the strength of the competition in the primary markets, and MiFID II intervening in the allocations of syndicate bankers (with market transparency very much to the fore), digital is the way ahead. And with corporate borrowers seeking to cut costs too, a new breed of platform provider is on the move, threatening to shake up the market and perhaps even disintermediate the bankers.

Market fixes

One such hopeful throwing its hat in the ring is CredX. Its digital marketplace for debt capital has already seen Deutsche Telekom issue a €50m ten-year promissory note loan to insurance companies of the AXA Group.

Marcus Thiel, CIO of AXA Konzern commented: “digitalisation and innovative positioning on debt capital markets are important action areas for AXA”. Markus Schäfer, Head of Capital Markets at Deutsche Telekom, added that the technology “significantly reduces the effort required to bring supply and demand for promissory note loans together”.

The thinking behind the CredX platform has, in part, its roots in MifiD II which itself is driven by a desire to fix information asymmetry and conflict of interest in the markets. “We wanted to create an alternative that could avoid these conflicts and commit to transparency,” says Ralf Kauther, CEO of CredX.

Digital control

“Banks and their service providers have been developing digital solutions for issuing bonds and [German midmarket] Schuldscheine,” explains Kauther. “We want to establish an alternative that gives issuers and investors full control of the flow of information.”

With claimed advantages such as secure end-to-end processing, the only paperwork for investors and borrowers comes at the registration stage, principally for anti-money laundering checks, says Kauther.

The platform supports all relevant steps such as structuring, market sounding, auction processing and settlement. “We can lead you through the platform’s main processes in a 45-minute webinar,” says Kauther. “Anyone familiar with the bonds business should immediately be able to work with it.”

As the digitisation of the bond markets continues, the same banker quoted in the Bloomberg paper referenced above was drawn to add: “There must be a certain fear of automation”.