A Rare Corner of the Markets That Europe Still Controls

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In recent years, Wall Street banks have dominated their European counterparts in most areas of global finance. But there’s one hot corner of the capital markets where European firms are staying ahead of their U.S. rivals: the soaring market for green bonds.

Overall, Europe’s banks have been laggards, even in their own backyard. In European mergers and acquisitions, for example, the top four arrangers so far this year are all U.S. firms. JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley have a combined 65% of the market, more than twice that of Europe’s investment banks that make the top 10.

But in the market for green debt — which I can’t help but think of as Kermit bonds — European banks punch above their weight. While JPMorgan is the top dog in overseeing global green bond sales, as it is in so many financial arenas, seven of the top 10 underwriters so far this year are European, making up three of the top five. Moreover, their combined market share is about 30%, almost double that of their U.S. peers at the top of the table.

A Rare Corner of the Markets That Europe Still Controls

Contrast that with the league table for international bonds, where Wall Street firms occupy four of the top five slots and half of the top ten. Their combined market share of 31% is a full 10 percentage points more than that of the top five European firms.

More than bragging rights about saving the planet are at stake. The total revenue available for managing green bond sales was about $1.3 billion last year, according to data compiled by Bloomberg. This year, the fee income available has already reached $840 million.

With the pace of issuance in the first 17 weeks of this year running at almost three times the speed of the previous two years, the market is on track to set a record for both volume of sales and revenue available to the banks involved.

A Rare Corner of the Markets That Europe Still Controls

European regulators have been at the forefront of global efforts to compel financial firms to acknowledge their environmental responsibilities when allocating capital. And with the European Union planning to become a benchmark issuer, designating a third of the $1 trillion it intends to raise through bond sales in the coming five years as green debt, the market will remain geographically tilted in Europe’s favor for a while yet.

But the U.S. is starting to make up some of the ground lost during the previous administration. On Thursday and Friday, President Joe Biden will hold a climate summit with the leaders of as many as 40 nations as he seeks to rehabilitate the U.S.’s role in addressing the climate emergency. Earlier this week, Treasury Secretary Janet Yellen appointed John E. Morton to head a new climate hub, reporting directly to her and charged with “mobilizing financial resources for climate-friendly investments.”

At some point, the U.S. government is likely to warm to the attractions of issuing green Treasury debt, not least for the reduced funding cost that the so-called greenium delivers. Wall Street firms aren’t likely to remain laggards in the market. European banks should enjoy their pre-eminence in environmentally friendly financing — at least while it lasts.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

©2021 Bloomberg L.P.

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