Friday, 22 June 2018

Light in the middle of the tunnel

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THIS PAST WEEK was not a good one for the City. The one before that wasn’t much better. Strictly speaking, there hasn’t really been a really good one since before the wheels started falling off in early 2007. Even the boom year of 2009 was all smoke and mirrors and the industry did not make of it what it could have done. Altogether, we are looking pretty poor as a collective. And yet, in the midst of all the gloom, doom and bad news, I have a heartwarming story to report – and it has nothing to do with puppies and kittens.

Anthony Peters, SwissInvest Strategist

There must be plenty of syndicate people out there who would love to have my guts for garters. For years, and long before my column appeared in the IFR, I have been leading a battle against the apparently random behaviour of syndicate desks.

At a small shop like SwissInvest, being allocated miserable scraps, irrespective of the size of new-issue order, is a part of life. Being allocated no bonds at all is in fact a more probable outcome unless the deal is a complete flop, in which case one can expect to be spanked with a unapologetic full allocation and no sense of being treated a bit better next time around in order to help to compensate for the losses.

However, as I keep reminding people, this only really hurts if it is unexpected – which it isn’t. Known unknowns and unknown unknowns.

HOWEVER, I HAD the most unexpected and gratifying experience recently, with – of all people – the mighty house of Goldman Sachs. Let me tell.

I received an early-morning call advising me of a securitised transaction similar to one we had participated in the day before. This one was for an emerging market credit and as such, a debut in that particular space of securitisation. For us to actually receive a call from Goldman – or any other house, for that matter – to invite us to take a look at a new deal is rare. I duly asked for the docs, did my work, spoke to a client recommending the deal as both beautifully-structured and generously-priced and went off to lunch with one of our contacts at Credit Suisse. While at lunch, I received a text message from my client asking me to put in an order for him in pretty decent size.

Upon returning to the office at 2pm, I found that Goldman had announced at 1pm that the books would close in half an hour and they duly did. I was not a happy bunny. You do all the work and go to lunch – I think we still have a right to do this – only to find that all was for nothing as the books were announced to be closing and were duly closed during a legitimate lunch hour. Trust me, I made my thoughts on the subject perfectly clear to the salesperson at Goldman. End of story, I thought.

But it wasn’t. An hour or so later, I got a call from the lady in question who reported that she had heard my contentions, had relayed them to the syndicate desk who evidently acknowledged that I had a valid argument and, believe it or not, agreed to take my order into the book.

I cannot tell you how amazed I was. Amazed? I was speechless, staggered, bowled over. In a matter of seconds I have excused and absolved Goldman for all the sins of the past years. Of all the syndicate desks in all the world, Goldies was the last one I expected a volte face from.

Investors are more often than not treated, in terms of risk exposure, with gay disdain

(To understand how I reacted to the size of the allocation relative to the size of the order, go back six paragraphs – sadly, as Isaac Newton teaches us, to every force, there is an equal and opposing force.)

WOULD THAT EVERY firm was as reasonable. Here’s another, less cheery example of our interaction with syndicate desks. In this case, the firm was one of two bookrunners on a trade, but as it was billing and delivering the transaction in question, its word on allocations is the only one which counts.

The deal ended up being allocated and priced late on a London evening and, while trying to ascertain our allocation, I discovered that the salespeople who cover us from the house in question happen to be based in Geneva (as SwissInvest we enjoy coverage from both London and Switzerland on an ad hoc either/or basis, even though we’re based in London).

Alas, by the time the transaction was allocated, their people in Switzerland who cover us had decided to go home. At 7:30 the following morning I was contacted and given my allocation – no bonds.

The following exchange took place:

07:21:44  SALESMAN: on XXXXX u receive 0. Rds.

07:28:57  ME : Don’t you think that it’s a bit late to tell us of an allocation 14 HOURS after it was released? You, YYYY, are B&D on this transaction and you were not here yesterday evening to give out allocations. That is not a winning performance.

07:30:05  ME : I don’t suppose you give any thought to your customers’ risk exposure.

07:31:28  SALESMAN : Sorry Anthony, allocations was out yesterday after closing. 18h30 pricing at 19h cet.

Sorry, mate, we work market hours, not office hours. If you want to work office hours, join the civil service. For too long now, investment banks have been obsessed with their own risk and the risk of their issuing clients, but investors are more often than not treated, in terms of risk exposure, with gay disdain.

Although the latter story is irksome, it is not unusual – a known unknown. However, it is far outweighed by the delight which I found in the behaviour of the syndicate desk at Goldman Sachs – an unknown unknown. Chapeau!

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