The Financial Markets segment encompasses the Capital Markets unit, the Asset/Liability Management unit, the Sales Public Authorities unit and the Financial Institutions and Public Finance unit plus asset management activities for institutional investors supported through Helaba Invest Kapitalanlagegesellschaft mbH.
The activities of the Capital Markets unit revolve around the twin objectives of maintaining a customer-led approach and consolidating its position as a strong and reliable partner for Sparkassen, companies, institutional customers and the public sector. The unit backs up its range of securities, money market, foreign exchange and derivatives products with professional counselling and proposed solutions designed to meet specific customer requirements.
Developments in the European capital markets were largely driven by further falls in interest rates, the expansion of securities purchasing (quantitative easing programme) by the European Central Bank and prominent political decisions such as the Brexit vote in the UK, the presidential election in the USA and the constitutional referendum in Italy. Declining – even negative in some cases – yields and risk premiums for government and corporate bonds created a subdued mood among customers in investment business.
Helaba continued to consolidate its capital market business in conjunction with the Sparkassen, which benefited in respect of both their proprietary business and capital market transactions for their corporate customers (ClientPlus). The Capital Markets unit provided training courses for Sparkasse staff in support of the new sales approach for Sparkassen in the foreign notes and coins and precious metals business area.
The low level of interest rates depressed revenue from interest rate hedging products in capital market business with corporate customers and public sector entities, although the rise in long-term interest rates in the fourth quarter did breathe some life back into active interest rate management activities for companies. Greater volatility in the foreign exchange markets led to an increase in currency hedging transactions with corporate customers. The Bank arranged interest rate and currency hedges for real estate customers in the context of credit finance.
Helaba continued to build up its activities in primary market business for customers. A year-on-year increase of over 50 % in the volume of issues in the promissory note market ensured that it remains one of the leading arrangers in Germany. Numerous issues for customers including international companies and public sector entities were delivered under Helaba’s leadership. The range of promissory note and bond issues, including structured issues, proved very popular with Sparkassen and institutional investors. Helaba took on the administrator role for the structuring of the largest Sparkasse credit pooling transaction to date (Loan Basket XIII), including risk diversification using credit derivatives.
Helaba’s Asset/Liability Management unit looks after group-wide liquidity management and funding and the management of banking book interest rate risks. Managing the liquidity portfolio to ensure compliance with economic and regulatory liquidity requirements (Liquidity Coverage Ratio – LCR) also falls within its remit. The unit manages Helaba’s issuing activities for funding purposes. This includes medium-term and long-term borrowing in the capital market (including cultivating relationships with the investor base, which consists largely of institutional investors) as well as the issue of retail certificates through the Sparkassen-Finanzgruppe.
This has brought significantly greater diversity to the funding base. The Bank successfully raised the necessary funds from institutional and private investors on reasonable terms in a market environment heavily influenced by the low level of interest rates. The long-standing policy of arranging funding largely with matched maturities was retained.
Helaba raised much of its funding by taking advantage of demand for its issues among German investors. The strength of investor confidence in its strategic business model and the progress of its business smoothed the way for Helaba’s funding activities in the unsecured segment. The good ratings enjoyed by Helaba and the Sparkassen-Finanzgruppe Hessen-Thüringen underline the importance of belonging to a strong association of financial institutions. Strong ratings safeguard the Bank’s continuous, cost-efficient access to funding in the domestic and international money and capital markets.
Retail certificate business proved a stable source of funding once again with an issue volume of approximately € 2.5 bn. The Sparkassen made a very substantial contribution to this total. Pfandbriefe remained one of the cornerstones of funding activities with a total issue volume of € 3 bn. Helaba has always been an active issuer in euros, but it also managed to raise sums in US dollars in the reporting period through the issue of Pfandbriefe. The regulatory environment and the European Central Bank’s covered bond purchase programme (CBPP3) had a positive impact on the funding cost base.
Sales Public Authorities
Helaba’s Sales Public Authorities unit looks after activities associated with the financing of the investment and liquidity needs of municipal authorities and their corporations. The Bank provides a strong and extensive range of products and counselling services for public-sector entities in its core regions.
Demand for long-term credit finance remained high due to the persistently low level of interest rates. Central, regional and local authorities with a high demand for short-term loans benefited from the negative interest rates situation when seeking loans to maintain liquidity. The Bank’s counselling services again proved very popular, especially among customers wanting guidance on different interest rate management options and term management.
Financial Institutions and Public Finance
The Financial Institutions and Public Finance unit serves two discrete customer groups: financial institutions; and international central, regional and local authorities and municipal corporations. Customers on the financial institutions side include established commercial banks, prominent European regional banks, insurance companies, brokers and stock exchanges, while the international public finance customer group takes in central governments and their administrative agencies plus not-for-profit institutions. Helaba offers target customers in these two groups a range of sector-specific advisory services plus bilateral and syndicated credit products, promissory note loans, letters of credit and liquidity lines.
Helaba focuses in this segment on the European Economic Area and North America, indeed the New York branch office ranks as one of the leading foreign counterparties in US public finance business. Helaba’s network of representative offices – Madrid, Moscow, Shanghai and Singapore – enhances its international presence and the capabilities of the S-Group Sparkassen in international business. A representative office in São Paulo is currently being set up. The Bank is also expanding its correspondent bank network in key markets for German exporters in response to increased demand for foreign trade finance from customers of the Sparkassen and corporate customers. Helaba insists on working only with high-quality counterparties in lending business with foreign central, regional and local authorities and governmental institutions.
Helaba’s Asset Management core business division provides a wealth of professional asset management services for institutional investors. Helaba Invest pursues a three-pronged business strategy constructed around the master management company (Master-KVG) service, asset management with securities, strategic and tactical asset allocation and asset management with real estate and alternative asset classes.
The importance attached by investors and asset management companies to ensuring compliance with the ever tougher regulatory requirements imposed – for both risk management and statutory reporting – continues to grow in respect of administration and hence for the Master-KVG business area. Helaba Invest accordingly continues to develop its range of services in this field, adding elements such as new reporting options (an ongoing process) and comprehensive support covering an institutional investor’s entire investment portfolio as well as the integration of real estate and infrastructure investments into capital investment.
The low and negative interest rates dominating the capital market further boosted the importance of multi-asset mandates, which take in commodities, currencies and infrastructure and real estate investments as well as the traditional shares and bonds. Investors also had a lively appetite for relatively safe shares that would enable them to take advantage of income opportunities without neglecting the pertinent risks. Helaba Invest addressed this demand by creating the HI-Aktien Low Risk Euroland-Fonds institutional public fund at the beginning of the year. The fund’s investment concept includes multi-dimensional risk analysis, consideration of income-boosting selection criteria and a non-capitalisation-based weighting of individual instruments. Combining these three elements leads to an attractive investment profile in terms of risk and return with smaller downside risks than comparable capitalisation-weighted indexes.
Investors willing to accept lower liquidity in the search for returns stepped up their involvement in alternative asset classes, especially real estate. Helaba Invest’s main area of expertise in real estate asset management lies in counselling institutional investors on formulating and implementing a real estate strategy compliant with their overall investment strategy. Helaba Invest continued its steady expansion into the real estate business area, to which it is still very much a newcomer, with two successful closings. Helaba Invest completed the sole closing for the HI-Immobilien-Multi Manager II-Fonds in the middle of the year. It managed to attract equity commitments amounting to around € 230 m for this product, a special fund organised under German law, which invests indirectly in European (primarily German) real estate. The first closing for the HI-Immobilien-Asien-Fonds was completed at the end of the year with capital of € 76 m having been attracted. This special fund organised under the law of Luxembourg invests indirectly in real estate throughout Asia. Helaba Invest prioritises broad regional and sectoral diversification for both funds.
Helaba Invest took advantage of new sales opportunities opened up by the expansion of Helaba’s S-Group business in North Rhine-Westphalia and Brandenburg. These extend to insurers and companies from the occupational retirement pension sector as well as the Sparkassen-Finanzgruppe. The highly diversified customer structure and the strategic combination of administration as Master-KVG and own asset management contributed significantly to the continued growth of the Company.
Helaba Invest anticipates continued growth in the institutional market, especially the special funds market, and expects insurance companies, pension schemes such as pension funds and pension plans, manufacturers and industry foundations to remain the principal sources of new business with special funds. Sparkassen in the role of institutional investors constitute an important customer group not just for Helaba Invest but in the market as a whole.