​​​​​​​Credit derivatives house of the year: Barclays

Risk Awards 2023: Attention to detail set bank apart from competition during volatile year

The UK team. Left to right: Finbar Cooke, Dan Odedeyi and Jenny Whitson

Photo: Geraint Roberts

The location and size of desktop pop-ups signalling client inquiries may not sound like the sort of thing that would separate a top-tier credit derivatives business from a mediocre one. Yet these kinds of “ergonomic” adjustments have helped propel Barclays to the top of buyside counterparty lists.

The force behind the changes has been David Goldenberg, the bank’s global head of macro credit trading who, since he joined from Credit Suisse in late 2021, has revamped the credit desk’s index trading operation.

“I like to be very involved and print a lot of tickets, so I need to be able to price as fast as I can,” he says. “Being able to get small tickets off the screen, price using pre-sets, auto quote, price versus a benchmark in index – a lot of little things – just added up to create a fighter jet, whereas it might have been a cargo jet before.”

The changes are part of a concerted effort by the bank to strengthen its credit business. This included hiring Dominique Toublan from BNP Paribas as head of US credit strategy in December 2021 and establishing a cross-credit sales team to coordinate previously siloed asset class-specific derivative sales.

It’s almost a waste, in my mind, if you have an index business that’s not really geared towards trading as much with clients as possible

David Goldenberg, Barclays

“We made a conscious decision to take away resources from other areas and devote resources to [Goldenberg’s adjustments],” says Drew Mogavero, Barclays’ global head of credit products. “Even though a lot of the requests seem super, super minor, when you added them all up, it came to a decent amount of resources to get it done. We thought that it was very important to deliver, that the sum of these little things could add up to a meaningful improvement and gain for our clients and the bank.”

Goldenberg says the changes “allowed the trading system to really keep up with the increased volume and pace of index inquiries” during a volatile year, and enabled him to maximise the time he spends speaking to clients. In the process, he helped turn Barclays’ index operation into a flow-driven business – hoovering up bid/ask spreads where possible, and gathering market intelligence to anticipate further moves and position the bank accordingly.

“It’s not just about me putting on a trade and watching it perform,” he says. “It’s about me being in touch with as many clients as I can be and utilising the penetration of macro products across [client types]. It’s almost a waste, in my mind, if you have an index business that’s not really geared towards trading as much with clients as possible.”

Yoni Gorelov, Barclays’ co-head of US credit trading, believes the additional volumes have given the bank a better view of the market than it had previously. “With Goldenberg, market share and volumes have gone up, not just with specific credit clients,” he says. “We’re also getting a much better lens into what macro hedge funds and macro accounts are thinking with regards to credit.”

The US team. Left to right: Yoni Gorelov, Drew Mogavero, Dave Goldenberg

Photo: Alex Towle

The results have been clear. Barclays’ 2022 market share in US high-yield and investment-grade indexes jumped 80% from 2021, according to the bank’s analysis of market volumes.

Figures from Coalition Greenwich Competitor Analytics put Barclays’ growth even higher, with H1 2022 market share two-and-a-half times that for the whole of 2021. The first-half data from last year ranked Barclays in second place in terms of market share among the largest investment banks, a two-place rise from 2021 and six spots higher than in 2019. The rankings are based on internal business structure and revenues.

Clients have taken notice, and Goldenberg says it was easy to transition into his new role as funds were eager to do more index business with the bank.

A credit trader at a US fund says that, before Goldenberg joined, Barclays was ranked near the bottom of its counterparty list for US CDS index trading. Now, the bank is the fund’s number one trading partner in the product.

“Everyone pays less bid/ask, everyone gets liquidity, and Goldenberg’s the one crossing it all,” says the trader. “When there’s something to do, he usually has the other side. Last year, he positioned himself in a way that when markets sold off, he could buy, and when markets rallied, he could sell.”

At one point last year, the trader was looking to sell a block of between $600 million and $700 million in the US high-yield index – a sizeable portion of the index’s daily volume. The trader gave the order to Barclays, which offset the trade as buy requests came in. In the hour or so it took to fill the order, the trader estimates it cost half what it would have if the fund had gone to another bank. “We would not have felt as comfortable telling the same thing to someone else,” the trader says.

John Aylward, founder and chief investment officer at Sona Asset Management, rates Barclays highly for its ability to act as a credit trading one-stop shop for the fund manager. “There are a lot of inconsistencies across firms,” he says. “Every firm has some people that are good at a few things. There are only a couple places that really are a full-service, can-do-something-in-every-area firm, and Barclays are right there.”

Time on its side

Strengthening the index business and building the cross-credit sales team came at just the right time for the bank. As inflation continued to rise in late 2021, markets braced themselves for the response from global central banks, which eventually came with aggressive hikes the following year. Russia’s invasion of Ukraine last February only exacerbated the situation and added to client enquiries.

“What really kind of struck me was just how much risk needed to change hands in a very short amount of time,” says Finbar Cooke, Barclays’ co-head of European credit trading. “On average, Russia had about a 3.6% weighting in EM bond indices going into 2022, and the index administrators were extremely quick to cut that basically to zero.” He adds that the timing meant clients would have had to reduce their exposure within a month, effectively before the end of the first quarter.

On March 7, 2022, S&P Global-owned IHS Markit, which administers the main CDS indexes, said it would remove Russia from the emerging markets CDS index that it administers. The move, which occurred less than two weeks after the invasion of Ukraine, coincided with an explosion in CDS trading. Average daily volume in Russia CDSs more than doubled to $475 million and average trade counts more than tripled to 91 in the three months from late December 2021, compared with the three previous months, according to the Depository Trust & Clearing Corporation.

Cooke says Barclays was able to offset flows among managers with Russia exposure by tracking various EM indices, funds that had purchased CDS as a geopolitical hedge, and other clients looking to trade dislocations between Russian and Ukrainian bonds and their corresponding CDS.

To handle the surge in interest, the desk combined its cash and CDS trading for Russia and Ukraine, which Cooke says contributed to its ability to price and trade with clients effectively. It also worked closely with Barclays’ legal and sanctions teams to understand the impact regional policies were having on trading.

Cooke says the experience emphasised the importance of collaboration between the sales, trading and research teams, in addition to “collaborating well with the legal and sanctions teams, which has been important forever in EM”.

The desk’s strength last year extended into other emerging markets. Barclays estimates its market share in Latin America index trading jumped by more than 30% from 2021 levels.

Marcel Kfoury, portfolio manager at BlueCrest Capital Management, says he could count on Barclays amid the year’s challenging liquidity conditions in emerging market credit: “If you look at those instances when vol was very high and liquidity was very thin, many times Barclays were the only ones quoting.”

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Mogavero says the desk’s ability to support clients in unique situations has been key to it gaining trust for its everyday business: “It may not have the day-to-day frequency of the macro business, but it adds a layer of skill, diligence and care that our clients can trust.”

Chinese real estate was one example of an emerging market challenge, as developers struggling to meet debt burdens fuelled volatility. Last year, the Isda-affiliated Asia credit derivatives determinations committee ruled five times that Chinese property companies had failed to make payments on obligations covered by CDS contracts. Since each situation failed to meet the required minimum for contracts outstanding and dealer positions, the committee’s rules required the counterparties to settle transactions bilaterally without reference to an auction-derived settlement price.

Just as it did after Russia’s invasion of Ukraine, Barclays’ desk turned to its rolodex of clients to help market participants exit their CDS positions on Chinese property companies. “We worked relentlessly to unwind some positions that were put on,” says Cooke. “We were able to facilitate flow between our traditional accounts and special situation [funds], the type of account that is willing to look at an illiquid, bespoke contract.”