Global markets award: BNP Paribas

The past year was an exceptional one for markets. As the first wave of the Covid-19 pandemic hit Europe and the US, it set off a liquidity crisis that could have spiralled out of control. While central banks acted as liquidity providers of last resort, some of their commercial counterparts also stepped up to offer critical market-making and other services to assist official-sector clients.

The corporate and institutional banking unit of BNP Paribas drew particular praise from central bank clients across a wide range of geographic regions and business areas – notably in fixed income, cash and repo products, foreign exchange trading and gold swaps – during this time of heightened market tension.

BNP Paribas kept making markets through the heat of the Covid-19 crisis, and was “willing to deploy” its balance sheet, according to Joe Squires, co-head of G10 rates for Europe, the Middle East and Africa (Emea). To take one example, the bank’s repo and securities lending activity with central banks in Europe saw a 30% increase in volume. One central bank client describes BNP Paribas as an “important partner” for securities lending services.

Its commitment to the sector is no accident. BNP Paribas has spent decades building its relationships with central banks. It set up a dedicated official institutions coverage team, which now comprises 25 staff, 15 years ago. Laurent Leveque, global head of official institutions coverage, says the team has strong support from senior managers, including chairman Jean Lemierre (the former president of the European Bank for Reconstruction and Development). BNP Paribas now works with 90 central banks, and counts more than 250 institutions among its official-sector clients, Leveque tells Central Banking.

All that glistens …

One area where BNP Paribas particularly shone during the Covid-19 crisis was gold. “We continued to provide significant liquidity to our official-sector counterparties to help them manage maturing transactions on gold swaps, with gold often delivered back to us due to market conditions, and we provided the liquidity needed, without disruption, in the London and Zurich markets in particular,” explains Davide Collini, head of Emea metals.

A reserve manager at a major central bank in Europe says his institution was able to benefit from these favourable market conditions. Working with BNP Paribas, the central bank conducted many gold market operations during March and April, taking advantage of gold market conditions and huge demand for dollar liquidity worldwide to generate additional returns.

BNP Paribas is historically one of our best market counterparts

Reserve manager at a major central bank in Europe

The central banker adds that BNP Paribas has also worked with his team on a new gold project, although the details currently remain under wraps. “BNP Paribas is historically one of our best market counterparts,” says the reserve official.

Bond markets have been central in terms of central bank responses to the crisis in 2020, and here, too, BNP Paribas was well-positioned. It has been an active participant in the European Central Bank’s (ECB) Pandemic Emergency Purchase Programme (PEPP), and has also been a leader when it comes to supporting governments with their Covid financing. As well as holding 25 primary dealerships worldwide, the bank was ranked top for its work on structuring Covid-related bond issuances in the year to September 2020, according to data from Dealogic.

Green finance is another area of strength for the French bank – and a topic that is rapidly growing in importance for central banks worldwide. BNP Paribas was involved in structuring several innovative bond issuances, and has helped central banks to invest during the past few years, says Delphine Queniart, global head of sustainable finance. An example was the three-year sustainable development bond issued by the Asian Infrastructure Investment Bank in June – central banks ultimately bought 76% of the 3 billion renminbi ($460 million) issuance.

BNP Paribas also participated in the issuance of the European Union’s Sure (Support to mitigate Unemployment Risks in an Emergency) instrument, comprising €100 billion ($121 billion) of loans from the EU to member states struggling with the effects of the pandemic. Central banks bought 37% of the 10-year tranche, says Queniart: “This is the result of intensive work from all our teams to support the European Union in this landmark transaction.”

The preparatory work and commitment to the official sector has helped bolster income. The bank’s global markets revenues rose 63.5% year on year in the second quarter of 2020, with fixed income, currencies and commodity revenues up 154%, reflecting frantic bond issuance by sovereigns to fund measures to combat the health crisis, as well as rapid reallocations in the portfolios of institutional clients, including major central banks.

BNP Paribas also has a trusted research role in green finance and on other matters relating to investment. It advises major central banks on green finance, and Queniart says the goal is to play a “leadership” role in scaling up sustainable finance markets. On broader research, one of the firm’s clients says there is a “very good relationship” between Leveque’s team and reserve managers.

The French bank has also grown its share in US markets and elsewhere, while remaining a top counterparty for euro activities. A European central banker points to a new, securities lending mandate denominated in US dollars that was awarded to BNP Paribas in the past year, adding that the French dealer is one of the central bank’s “more active” counterparties in both dollars and euros. The official notes that BNP Paribas also offers renminbi services, unlike many other counterparties.

BNP Paribas is committed to offering services to central bank clients across the ‘full value chain’ of global markets, from trading to finance, in addition to asset management and securities services. Its credentials underwent a tough real-world stress test in the past year, and the bank ultimately delivered on its promise to stand by central banks throughout the turbulence.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Rachael King, Victor Mendez-Barreira, William Towning and Alice Shen