A year ago he moved to the bank to help it address the problem, and has spent the time since trying to ensure the Wall Street bank has a better presence in the European market.
BAML is now making strides in parts of the business – but remains some way from its goal of being a top-five bank in the region.
Munro and Toby Ali, BAML’s co-heads of leveraged finance for Europe, the Middle and Africa, know there is work to do. For Munro, who spent 20 years with JP Morgan before making the switch to BAML in August 2015, that was part of the attraction of the job.
Munro said: “For years I’d looked at BAML and thought: you’ve got a huge M&A footprint, continuing to grow and gain share, and a fantastic equity business. Yet when you look at leveraged finance in Europe, it has always punched under its weight.”
The bank’s top team is also aware of that. Bob Elfring, BAML’s Emea head of corporate and investment banking, told Financial News in July 2015 that “top five is the target” for the firm’s European leveraged finance business.
That, Elfring added, would bring it into line with the successes of the US business – BAML is one of the top mandated lead arrangers for US leveraged loans. Elfring said at the time: “We’ve been number one or two for many years in the US, so it’s clear that the strength and capabilities are embedded within our organisation. We now need to translate that ambition into a more meaningful position in Europe.”
Munro’s appointment came three years after Ali’s arrival from Credit Suisse. Other hires to the leveraged finance team in Europe have included the 2014 appointments of managing directors Rahul Srinivasan and Itay Singer, also both from Credit Suisse.
In some areas of the business, these kinds of investment are paying off. BAML now ranks seventh as a bookrunner of high-yield bonds in Europe, according to data firm Dealogic. That compares with 13th at the end of 2015 and 17th at the end of 2014. The bank last finished a year as high as seventh in 2011.
But the bank ranks 14th in European leveraged loans, based on mandated lead arranger roles, down from 11th in 2015 and a high of sixth place in 2013.
A high-yield head at a rival bank said: “They made some big hires but they don’t seem to have made as much headway as what might have been expected, certainly in comparison to the big four or five investment banks.”
He added: “They certainly are not achieving the same results as in the US, where they are top three.”
Another industry peer said of BAML’s European business: “They still need to do a lot of work to get to the tier one category. It will come from getting guys like Chris on board – he was a very significant hire. They’re making progress. But are they as competitive as, say, Goldman? Probably not.”
Speaking with FN in the bank’s London office, Ali and Munro said they were happy with the progress BAML has made but that there was much more to do.
The bond business is improving, Munro said, even if it is still not where the team wants. Making a mark in leveraged loans was always going to be tougher, he added, given that the European market is dominated by what he called “national champions”. The top 10 mandated lead arrangers on European leveraged loans include names such as UniCredit, ING, Credit Agricole and Commerzbank, with track records in their respective home markets.
Munro said of the loans business: “That’s where it will take longer to be meaningful. Obviously we’d like to be higher but we’re not super stressed out.”
Much of BAML’s leveraged finance focus historically has been on financial sponsor-led work. Now there is also an emphasis on corporate deals, an area of the market home to huge borrowers such as Liberty Global, Altice and Ineos. Big, frequent issuers, Munro said, are “squarely in the wheelhouse of any leveraged finance platform, and unless you’re successful there you’re not going to be successful”.
That calls for more than “just showing up with a cheque”, Ali added. “You don’t wait for corporates to give you a call, you have to give them ideas… It’s getting into the capital structure, showing them ideas, telling them where the market is, proving that you have something thoughtful to say and then when you get the opportunity to execute, doing a good job.”
Smaller, less frequent corporate issuers are also in BAML’s sights – but present more of a challenge to win work from, given that most will have longstanding relationships with local banks.
Getting new business is harder when there are fewer M&A deals being done, and both Ali and Munro are eager to see an upturn in deal numbers in the region.
Munro said: “If you’re trying to build relationships, CEOs and CFOs aren’t going to do that with refinancing. Where it becomes an easier pitch for them to incorporate a new lender or new adviser is when there’s something more strategic – an acquisition or thinking about capital structure, buying back stock and so on. That’s the forte of this place, bringing together the M&A dialogue and the capital markets expertise.”
When will M&A pick up? “We’re seeing signs,” Munro said. “Corporate balance sheets are in great shape, organic growth opportunities across Europe aren’t necessarily obvious.”
Ali added: “Sponsors have a lot of money – there are a lot of funds that have closed.”
The good news is that the headline factors denting confidence in some parts of the market appear to be taken in their stride in leveraged finance. The UK’s June vote to leave the European Union seems to have had a limited effect.
Analysts at Standard & Poor’s said in an August research note: “Although deal flow this year will likely be slightly lower than in 2015 amid the prevailing economic and political uncertainty, trends since the 2008 financial crisis show that the leveraged finance markets are fairly resilient to shocks.”
Munro said: “The fear of the unknown in leveraged finance is pretty powerful. There was the expectation of a tremendous amount of volatility [following the Brexit vote]. You saw that in the first 48 hours, but ultimately what we’ve see is liquidity winning the day.”
He added: “The amount of capital that was sitting on the sidelines, the statement of intent from policymakers and central bankers, the action they’ve taken to shore up the capital markets, has been very powerful. And investors have done their work in terms of what does this actually mean – does a healthcare company in Germany, say, get impacted by the Brexit vote? Probably not. Should those loans and bonds have been down by four points? Probably not.”
The co-heads appear relaxed in conversation but know there is a ticking clock when it comes to growing their business – if they are still being asked why the bank is not higher in the league tables in three or five years from now, Munro said, “that’s a problem”. Equally, he added, it would be undesirable to write a lot of cheques now to buy market share, grab that top-five slot quickly and then lose it again in the coming years.
Ali said: “We’ve got a plan for what we think we need to do. If we do it enough times it will work. Sponsors will continue to see us there, active, delivering. Corporates will see Bank of America Merrill Lynch being increasingly active in the markets. Our name will be in the right places. You don’t turn a light switch. You need to put money to work, show the breadth of the franchise, show senior support. We’ve got all that, but rolling that out and proving it, it just takes time over a number of opportunities.”