Wednesday, 19 September 2018

COMMENT: Glory over fees

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  • Lloyds

Two prestigious ECM mandates were awarded last week for WH Group’s US$5bn–$6bn Hong Kong IPO and the UK government’s latest sale of Lloyds Banking Group, at £4.2bn the largest-ever accelerated bookbuild in Europe. 

The former pays fees while it cost banks money to lead the latter, yet the state sale was the one to win.

A quick judgement points to WH Group as the trophy mandate. It is set to be Hong Kong’s largest IPO this year and new issues show off an ECM team’s skill across research, origination, syndicate, sales and trading.

UK Financial Investments did not pay banks on Lloyds a fee and even blocked them from charging buyside commissions, worth over £6m.

WH Group has, however, benefited from the cancellation of larger deals and offers few benefits.

The syndicate includes a record 28 bookrunners, while the real engine room in ECM, thanks to title inflation – the joint global co-ordinator grouping – numbers a barely less absurd 15.

Fees are set on the overall deal size, so will be small and shared so widely any firm would most likely be better off as sole bookrunner on a US$150m IPO.

Naturally there is the glory of being involved in the biggest deals, but WH Group will feature in the pitch books of just about every bank active in the region.

Fair play to banks not even active in Asia ECM – they get paid for dialling in to a few conference calls at unusual hours. But accommodating all those freeloaders means more work for the major ECM houses, without just reward.

Compare that with Lloyds. A week’s work, with sales teams involved for just a few hours, means the cost was tiny and the four bookrunners have a prestige mandate not in possession of the rest of the top 10. The next government sale will be a marketed transaction so may even pay fees. 

That bodes well for the future, and there is also an immediate boost as the four have now caught up with Deutsche Bank in the region and made a significant dent into Goldman’s huge lead just in time for the first-quarter league tables.

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