Derivatives house of the year, Hong Kong: BBVA

Asia Risk Awards 2024

Eric Michl, BBVA

Launching a brand new structured products business is not an easy thing to do but, three years ago, this is exactly what BBVA’s team in Hong Kong decided to attempt, building on its established corporate franchise to serve a whole spread of new clients, especially on the private banking side.

Over the years BBVA has built a name for itself as a reliable bank for corporates across Asia-Pacific, offering both long-term and short-term financial support. It is now starting to make waves in other areas, too.

One Singapore-based head of sales for a large private bank says: “Although BBVA is still fairly new to the market, it has now become one of our preferred structured products houses. The level of service provided by the sales team is very good. Whenever we ask them for new product ideas, they are very responsive and enthusiastic, and always come back to us in a very short timeframe.”

High barriers of entry make BBVA’s ventures into Asia’s structured products market all the more remarkable.

“This has been a global effort,” says Eric Michl, BBVA’s head of markets. “New market entrants often have a very narrow product scope. We have the luck of being backed by a very big bank with a high credit rating and a full product capability.”

The first 18 months of the project were spent strategically building the team, developing the product offering and investing heavily in technology.

Last year, BBVA started product distribution, first in Hong Kong but subsequently to other markets, such as Singapore and Taiwan.

“Building up BBVA’s regional structured products business in such a short period of time has been a remarkable achievement. I’m not sure I can think of any bank over the past decade that has really done what BBVA has done,” says Charles Firth, managing director, global markets Asia.

Firth, previously with Credit Suisse and UBS, joined the Spanish Bank in December.

Automated pricing system

At the heart of any successful structured products house is the pricing engine. BBVA is able to price automatically across equity, foreign exchange, rates and even credit. Michl says BBVA is one of the first banks to have an automated credit pricer.

The pricing engine platform incorporates the latest cloud-based technology, allowing quick and accurate pricing across a far greater range of asset types than might otherwise be possible.

The majority of pricing inquiries can be processed without operational constraints, providing tens of thousands of quotes every day. This has been key to winning business across the region.

“Being able to connect with clients is very important,” says Firth. “For distributors to want to work with us, a couple of things need to fall into place. One, clients need to be able to get prices in an efficient way. Two, they need certainty that we will be there for after-market services and whatever else they might need.”

Product mix

Despite Asia’s structured products market being still fairly skewed towards equities, the strength of BBVA’s franchise lies in being truly cross-asset. With other asset classes starting to gain more traction with clients in recent years, this has become an ever greater edge for the bank.

“Asia still remains very equity-focused, but there has been a shift into other asset classes and I think this will continue,” says Stephen Sun, head of equity and investment solutions sales for Asia. “As people have tried to lock in high rates, they have been interested in exploring interest rate structures.”

He suggests that with interest rates starting to fall, investors might like to add credit features into the products to enhance yield.

“Overall, we expect demand for equity-linked products to remain, and we are here to serve client needs across the whole asset class spectrum,” he says.

Michl says the bank aims to be here for the long-term structured products needs of its clients.

“The primary focus of our equity flow sales team is to recycle and hedge the risks that come from the client structured products business,” Michl says. “This is quite a different approach from that taken by other banks and allows us to keep risks in check. As a result, we can continue to show consistently aggressive pricing throughout the cycles. This allows us to build durable relationships with distributors as we strive to become long-term trusted partners for our clients.”

A handful of structures demonstrates the global reach and structuring capabilities of the Hong Kong team.

BBVA executed a five-year Colombian peso-denominated structure for a pension fund featuring more than three times participation in the upside of Japanese equities. The transaction was a substantial size, over $50 million, and was handled by the Hong Kong trading team.

The team also hedged a similar new Peruvian sol-denominated protected structure for distributors in Peru and executed structures in Chilean peso.

Closer to home, BBVA pioneered a 10-year Australian dollar note with fully green credentials. BBVA has also been enabling investors to express their views more precisely by offering enhancements to the standard equity-linked fixed coupon note product and hedging protected structures in Korea.

“We have made great strides over the past three years, but there is still a lot more we want to do,” says Michl. “I’d say we probably have a 25% penetration in terms of the number of clients we would like to focus on.”

BBVA started with the big private banks – those with whom it had global connections – but is now looking at more local opportunities. 

“We’ve been enjoying quite a bit of success with the local players over the past few months, but we still have quite a bit of room to grow,” says Michl.