Banks can trip in search of a rise up the table
INVESTMENT bankers are pleased with any pickings these days and in the past few weeks there has been healthy signs of action in the world of block trades.
This is a phenomenon whereby a bank offers to buy a block of shares in one company and sell it on.
The idea is that, hopefully, the bank in question can line up a list of buyers of the stock at a price that gives it, together with a fee for undertaking the transaction, a healthy profit.
But last week Morgan Stanley found that it had to buy half the stake in Danish telecom group TDC itself, after it failed to find sufficient buyers for the shares.
Morgan Stanley will now have to drip feed the shares onto the market over the next few months at the risk of dampening down the price, or it can take a decision to hang on for a while before selling them all in one go. Morgan Stanley’s experience followed that of Citigroup, which the week before experienced similar difficulties selling down a parcel of shares in Centrica.
It’s possible that both transactions were just unlucky and that deals that felt do-able at the time suddenly turned wrong for inexplicable reasons.
But many in the market feel the two incidents indicate a willingness on behalf of some banks to act too aggressively in order to get the deal. This could be either to keep bankers busy or satisfy a desire to pick up market share in the all-important league tables that the banks all follow (or both of these reasons).
With the London IPO market still near dormant, and the European ones quietish, block trades are an increasing focus for underutilised equity capital markets teams. And there is strong demand from investors who are underweight in equity risk assets, especially those with a European flavour now that the fear of a meltdown is receding.
There are rumours that Lloyds Banking Group is once again evaluating the possible sale of its 60 per cent stake in the fund management group St James’s Place, though no announcement is imminent. Also there is talk that the insurance group Aviva might be lining up buyers for its stake in Delta Lloyd.
The experience of the past few weeks demonstrates, however, that such business does not come without risks, no matter how many league table points it might account for.
MOVES AT UBS
Any day now, UBS is expected to announce the successor to its head of EMEA equity capital markets Peter Guenthardt, who is being promoted to become the chief executive of the Switzerland investment bank.
One theory is that his job will be split by two people: Darrell Uden and Chicco di Stasi, the current head of the bank’s strategic equities solutions group.
david.hellier@cityam.com