Debt capital markets (DCM) are a key tool in the armoury of businesses looking to raise money through debt securities such as corporate bonds, but as with everything in the world of corporate and investment banking, the landscape is shifting beneath our feet. 

In 2022, the world’s total DCM issuance was $6.3tn, with the record to date being 2020, which was closer to $9.5tn. 

Not insignificant sums of money, but from where did debt capital markets originate, and in what direction do we expect them to go as we approach the second quarter of the 21st century? 

The history of debt capital markets 

You can go all the way back to 2400 BCE for the first recorded bonds – in existence long before stocks – which originated in modern-day Iraq and were written on clay tablets. 

However, it’s the 17th century where the idea of selling debt truly took off, as the Bank of England, one of the world’s oldest central banks, started issuing government bonds. Indeed, this also marks the birth of Gilt markets, courtesy of these particular certificates coming with gilded edges. 

Debt markets gained further traction in the 1700s, as a new covered bond known as the German Pfandbrief – a dual resource, asset-backed security – came into existence with noble landowners raising money against both their own credit and the value of their estates as a security. 

The next major revolution in the world of debt issuance came in July 1963, when the Autostrade issue for the Italian motorway network brought the first ‘Eurobond’ to the market, meaning that a multinational syndicate composed of financial institutions, for the first time, actively underwrote and distributed a transaction in a major currency – at the time, the US dollar. 

Since the 1960s, we have seen the market develop into a truly global animal. The present-day internal debt capital markets are comprised of bond dealer associations, clearinghouses, and exchanges, to name a few, while we’ve also seen the creation of single currencies and a multitude of investment banks, brokers, dealers and investors.  

Indeed, Santander CIB has a strong presence in many markets, acting as a structurer and underwriter of transactions, distributing paper across the globe and making secondary markets in a variety of subsets of asset classes that exist for Corporate, Financial Institution, Sovereign, Supranational and Agency clients. 

While Santander CIB’s place in the DCM ecosystem is a strong one, it’s never been more crucial to ensure fingers remain on the pulse of cutting-edge developments in the world of debt issuance. 

Have DCMs sufficiently modernised? 

Despite many advances in the trading of bonds in the secondary market over the years – such as the increase in the number of venues, as well as progressive automation – there has been surprisingly modest progress in the way new bond issues are executed, despite the significant technological steps made over the period. 

Right until the mid-90s, orderbooks were collated with pen and paper on trade blotters, and while spreadsheets sped matters up, the process overall was still an overwhelmingly manual one. 

Then along came online, shared order book systems, which brings things to the present day. This system allows salespeople, at all banks or institutions involved within the transaction, to enter orders into new issue order books once deals are announced. 

These systems also have the capability to automatically find and clean duplicate orders, while fixing any inconsistencies that arise, all but avoiding the need for long reconciliation calls, enabling more time to be spent on clients’ needs and less on timely administration. 

Conor Hennebry, global head of Corporate Debt at Santander CIB, comments: “our origination platform has grown considerably over recent years, and this is in part down to the investment in technology and our commitment to digital solutions.”

Santander’s place in the DCM ecosystem 

Santander CIB is committed to playing a key role in the in industry’s ongoing electronification, and accelerating the transition towards a more complete and coherent process, where investors can use their own, in-house order management systems to place orders and receive allocations. 

The deal execution world is complex and requires conjoined efforts from many of the key players in the DCM sphere, including Santander, in order to make the operation more efficient, particularly in relation to any pre- and post-launch processes such as pitching, provision of legal documents and settlements. 

Furthermore, Santander has been at the forefront of using blockchain for issuance, where in 2019 it launched the first end-to-end blockchain bond, worth $20 million. 

At the time, José M Linares, SEVP and Global head of Santander CIB said: “our clients are increasingly demanding the best thinking and technology in how we serve them in their capital-raising efforts. This blockchain-issued bond puts Santander at the forefront of capital markets innovation and demonstrates to clients that we are the best partner to support them on their digital journey.”

John Whelan, Managing Director – Crypto & Digital Assets at Santander CIB says: “the entire securities lifecycle has scope for digitization. At some point we can imagine where all securities will be digital and programmable. At Santander we are pleased to be playing our part with our clients in this extraordinarily complex industry transformation."

“It’s been a long time coming, but I truly believe we are about to experience huge advances in the efficiency of the full lifecycle of bond execution with the help of technology” adds Stuart Montgomerie, Managing Director – global head of Syndicate at Santander CIB. 

“We are passionate about playing our part to make this happen, working closely with our issuer and investor clients to ensure Santander is driving these changes for the benefit of all market participants as well as the global economy.”

A paradigm shift has been under way in the Cash Management business for some time now. Where once there was a bilateral relationship between the bank and the client, this is now a multilateral business where third parties participate to improve the overall service experience. In this context, Santander is analysing how to collaborate with new participants.

Before discussing SAP Ready, our solution for navigating this paradigm shift, it is important to describe the baseline situation. As a global bank, it is crucial for us to be at the forefront so as to continue offering a best-in-class service to our customers.

To make this possible and advance on a firm footing on this journey towards ‘invisible banking’, we explored what the market would want to simplify and facilitate their cash business. Here is where SAP Ready was born. SAP is the most widely used ERP among corporate clients, and it is the perfect partner to co-create distinctive solutions and make ‘invisible banking’ tangible.

Our alliance with SAP seeks to accelerate the digitalization of Global Transaction Banking services for our clients while helping them navigate supply chain disruptions and accelerate their decarbonization endeavours. SAP Ready’s ambition is to embed Santander Cash Management solutions, both global and local, within the client’s core system, enabling them to transact directly inside their own SAP ERP. It is important to highlight that SAP Ready is not only about Cash Management — it also covers the full scope of GTB solutions to enhance cash flow and lend efficiency to our clients’ supply chain using the most innovative solutions.

Jose Luis Calderon, head of Global Transaction Banking (GTB) at Santander CIB, said: “This partnership is a step forward in the digitalization of the solutions we provide to our clients, with a strong focus on connectivity, supply chain management and the energy transition. We already have a strong transactional banking solutions portfolio in Europe, America and Asia that helps our clients navigate the complexity of doing business globally. This value proposition comes from the combination of understanding their needs and their daily challenges while leveraging the latest technology that SAP can deliver and the depth and breadth of our product offering.”

In the Cash Management area, our vision is focused on three main pillars:

• Connectivity: As we have announced on previous occasions, we continue working on the SAP Multi-Bank Connectivity (MBC) solution. This service connects banks and financial institutions to corporates across Santander’s footprint in a plug&play mode to resolve many issues that corporate treasurers face in their day-to-day operations by embedding banking services within corporates’ ERP systems.
• Interoperability: We seek to offer cutting-edge technology in order to simplify and accelerate integration with our clients without requiring additional SAP installations. In this regard, Santander has been working on several initiatives to facilitate and accelerate our clients’ go-to-market processes and to boost their customer data extraction and transformation.
• Evolution: This partnership is up and running, and the pace of initiatives to facilitate our clients’ operations will accelerate in the near future.

While the potential upsides of these projects for corporates are clear, the ability to quickly switch the banking provider could be seen as a threat, as it was thought in the past that a cumbersome process created ‘stickiness’, i.e., that customers would remain with their incumbent banking relationship because changing was too problematic.

However, this old-school mindset has changed over the past 18-24 months, fostered by the advent of cloud and application programming interfaces, as well as the rise of platform business models. Corporate banks now want to make it as simple as possible for customers to use their banking services by taking advantage of embedded finance solutions. For that reason, Santander is approaching not just ERPs but also TMSs and Bank Connectivity Providers, as their rise exemplifies corporates’ need for quick and easy-to-use solutions.

Trending topics such as Cryptocurrencies, Stablecoins, DLT, Blockchain or CBDCs are part of many conversations in our daily life. Exciting times in banking may be coming since new shapes of money mean new ways of payments.  

Undoubtedly, banking industry must realize all these technological disruptions which may impact our client business in the upcoming years.

The core of these discussions within the industry lies on whether the new types of Digital Money would be valid means of payments. Santander Global Cash Management is no stranger to this subject.
 
Therefore the starting point is to understand the different sorts of Digital Money, what their attributes and specificities are and whether they could be suitable for transactional purposes. In a previous blog on stablecoins and CBDCs, we presented some of the varieties of digital currencies but there is more to know about these. In general terms, the industry sees it as a five-player game:

• Commercial Bank Money: Nowadays worldwide predominant payment method, is the money that everyone has on their bank accounts. Although challenged and questioned, the industry is moving forward to deliver a much more efficient and seamless payment user experience (ISO20022 migration, instant payment schemes, APIs). 

• E-money: Electronic Money is a type of digital money stored in -Money Institutions (EMIs)/Payment Institions (PIs) electronic wallets. While the industry hype is on Crypto and Stablecoins, e-money is increasing its popularity and user base (Mercado Pago, Mpesa, WeChat, Paypal). If the Closed loop nature of the solution brings instant settlement among parts and outstanding user experience, the reachability is exclusively bounded to the e-money network.

• Central Bank Digital Currency (CBDC): CBDCs are a digital form of central bank money, just as banknotes and coins issued by Central Banks but digital. Most central banks are exploring their potential benefits and risks as well as the value-added for the payment systems. CBDCs might have a major case in developing economies where financial inclusion is still fairly low (e.g. e-yuan, Sand Dollar, or e-Naira). Meanwhile, in developed economies there is no clear answer yet to the question “Are there proven benefits for a CBDC?”. At the same time concerns have been raised on how CBDCs could impact financial stability, new infrastructure costs for the whole industry, anti-money laundering plus privacy implications, and cross-border spillovers.

• Cryptocurrency: Digital asset that uses cryptography to secure transactions exchanged on a P2P network. Programmability, proven DLT network security, and disintermediation are key advantages delivered by cryptos. However, due to the ongoing turbulences in the global economy, the lack of regulation, and the increased volatility, cryptos are currently being seen more as intangible investment asset than a mean of payment. (Bitcoin, Ethereum…)

• Stablecoins: Digital asset that seeks to deliver the benefits of cryptocurrencies while trying to remove their volatility. Some stablecoin (e.g. USDC) look a lot like a programmable form of e-money, combining the benefits of that ecosystem with the open source nature of DLT, leading the relatively new phenomenon of "decentralized finance" aka defi.

However, stablecoins have been making a lot of buzz recently showcasing the inherited risks these assets have.

Both risk and volatility shown by cryptos and stablecoins could be mitigated by regulation. In this regard, MiCA regulation in the EU is being created to provide a uniform legal framework for crypto-assets and similar efforts are under way in the US or UK.

Santander participates in several initiatives towards trying to analyze potential use cases where these new elements might be beneficial:

• Fnality: Santander is a founder of the banking consortium to create a payment solution based on distributed ledger technology (DLT) and blockchain technology. It was created to facilitate peer to peer tokenized transactions backed by money held in a central bank account.

• CBDCs: Santander is actively participating in the ECB consultation process and other initiatives launched by the central banks in those geographies where we are present, exploring potential use cases, benefits or technologies in which the potential CBCD would rely on.

• Agrotoken: is the first global experience, launched in Santander Argentina, collateralizing loans with tokens based on agro-commodities such as soya beans, corn and wheat. The solution allows farmers to access new financing solutions extending credit capacity with tokenized assets.

“The Santander Cash management team is closely monitoring these new trends and initiatives to understand where the transactional processes could be impacted. More and more clients are seeking for comfort advice and solutions that ensure trust, reachability and interoperability and this can only be achieve through “Global Industry initiatives” (Fnality, RLN). Stéphanie Rodriguez Aniorté | Global Head of Payments Santander CIB

Technology disruption is changing the payment´s landscape… but the “final products” are yet to be revealed.

Over the last few decades, cybersecurity has evolved into one of the most critical functions globally, on both a corporate and governmental level. That’s no different at Santander CIB, where the cybersecurity team is headed up by David Sheridan, who has been at Santander for over 22 years and has overseen a huge amount of change. We sat down with him to explore how the world of cybersecurity has changed during his tenure, and what his team’s role at the bank is.

David explains that the function of cybersecurity at an industry level has evolved significantly  “Information security had largely been an IT function since the beginning of the interconnected age”, he says, “covering things like network security and systems access, it was very much a technical discipline within IT. Now, as people become more aware of the risks to businesses and clients from cyber threats and those threats become more sophisticated, it’s now treated as a discipline of its own”. 

Cybersecurity has come a long way in recent years. When the technology and platforms most companies use were originally built, they never imagined that the internet age meant the security of a product could change over time. In practical terms, that means that cybersecurity teams work with systems, which naturally overtime have vulnerabilities that have to be addressed. 

Our cybersecurity team plays a critical role within the bank, and their extensive remit covers both internal systems, and also working with suppliers and clients in an advisory capacity. 

Within the bank, the focus is on protecting, detecting and managing  before they arise. Ultimately, David explains, “this is a broader resilience piece. A lot of my team’s time is spent ascertaining whether we have the right controls to protect against  ransomware, testing systems for security or working with staff to understand the behaviors needed to protect against cyber threats. 

The work we do on staff training and awareness, and in ‘security by design’ in any new product or system we implement, is ultimately designed to defend what David describes as “the hyperconnected bank of the future” and implementing controls that ensure people can only access the information they need to do their jobs. 

Another area of focus is on supply chain risk. We therefore work closely with all our suppliers to ensure they are equally well protected and that they meet our security standards. “This all feeds into our client relationships as well”, David explained. As a business, it’s essential that we are secure right the way through our supply chain, to make sure in turn that our clients data and assets are protected. Ultimately, the job of the cyber security team when it comes to clients and customers is to generate trust between us, and value for them from our services.