2016年-FCA英国金融行为监管局_ms15_1_2_annex_3_19页_344kb

Summary of MS15/1.2: Annex 3 - Client Case Studies

Introduction

This annex provides a summary of the views gathered from various issuer clients regarding the investment and corporate banking market. Over 50 issuer clients, representing $586bn in debt capital market (DCM) and $25bn in equity capital market (ECM) issues in 2015, participated in the study through meetings, bilateral calls, and written submissions. The clients included large corporate and sovereign, supra-national, and agency (SSA) issuers, as well as small and medium-sized corporate issuers, private equity houses, and financial institutions.

Large Corporate Issuers

Core Content

• Banking Relationships: All large corporate issuers (FTSE 100 companies) maintain relationships with more than ten investment banks, with some having over 20 institutions in their banking group.
• Revolving Credit Facilities (RCFs): RCFs are a central part of their funding model, providing low-cost floating rate funding. These facilities are used for short/medium-term borrowing, with longer-term funding sourced from DCM.
• Competition and Incentives: Issuers use RCFs to incentivize banks to compete for transactional mandates and primary market business. Banks that provide committed funding are often rewarded with ancillary business.
• Fee Structure: Fees for DCM transactions are typically set by the issuer based on previous market benchmarks. While some issuers feel fees are high, they noted that banks are less responsive to fee negotiations in the US due to fewer providers and public disclosure of fees.

Key Points

• Syndicate Composition: DCM syndicates are usually composed of 3–4 book-runners, with some firms awarding junior roles to smaller banks.
• Transparency and Performance: Issuers use pricing and secondary market performance of bonds to evaluate bank execution. Reputational damage is a significant concern for banks that mismanage transactions.
• Allocation Decisions: Issuers prefer long-term, buy-and-hold investors in allocation. They are involved in the process and do not feel banks limit their involvement.

Additional Concerns

• Some issuers noted concerns about secondary market liquidity and competition in other markets, though these are outside the scope of this study.

Small & Medium-Sized Corporate Issuers

Core Content

• Choice of Banks: Most SMEs have sufficient choice of banks and advisers for services like IPOs and RCFs. However, some noted limited options due to their size, niche, or market conditions.
• Selection Criteria: Trust, relationships, capabilities, and value for money are key factors in selecting banks and advisers. For transformative transactions, execution capabilities and track record are more important than fees.
• IPO and Debut Bond Issuances: Many SMEs use a 'beauty parade' process to select syndicate banks. They noted that fees for IPOs are high, but some banks are willing to negotiate.
• Corporate Broking: Corporate brokers are often retained from the IPO syndicate. Broking fees are not always sufficient to cover costs, but issuers value the relationship and the broker's understanding of the investor base.

Key Points

• Fee Negotiation: Most SMEs condition ancillary business on receiving competitive pricing. Only one issuer paid higher fees for payments services to a lending bank due to fraud risk concerns.
• Allocation and Broking: Issuers are involved in allocation decisions and prefer stable, long-term investors. Broking relationships are not binding, and issuers may replace brokers if the relationship deteriorates.
• M&A: M&A transactions are typically originated by intermediaries with industry expertise or the issuer itself. Corporate brokers are not usually suitable for originating M&A deals, though they may assist with financing.

Additional Concerns

• Conflicts of Interest: One issuer ended a relationship with a bank due to a conflict involving a relationship manager advising a competitor.
• Regulatory Costs: SMEs noted that issuing debt in public markets is costly and often opt for US private placements.
• Financial Covenants: Post-financial crisis, banks have imposed stricter covenants on credit lines, which can be problematic for firms facing short-term liquidity issues.

Private Equity Firms

Core Content

• Activity and Engagement: Five private equity firms, which had invested in companies raising over $20bn on equity markets in 2015, provided feedback on their use of investment banking services.
• Focus on IPOs: PE firms are active in UK IPOs and often use their existing relationships with banks to secure financing and advisory services.
• Fee Negotiation: PE firms are sophisticated users of banking services and often have dedicated teams to manage relationships. They noted that fees for IPOs are high but can be negotiated, especially with corporate brokers.

Key Points

• Broker Relationships: PE firms retain corporate brokers from their IPO syndicates. They value the brokers' understanding of the issuer and investor base.
• M&A Advisory: Some PE firms award M&A advisory mandates to their corporate brokers, leveraging the brokers' fear of reputational damage and using their in-house M&A expertise to negotiate fees.

Conclusion

The case studies highlight the importance of banking relationships, especially through RCFs, in driving transactional mandates and ancillary business. Large issuers have more control over the selection process and emphasize competition and value for money, while SMEs rely more on trust and existing relationships. Private equity firms are active participants in IPOs and M&A, using their relationships strategically to secure services. Overall, the study underscores the dynamic and competitive nature of the investment and corporate banking market, with issuers playing a central role in shaping service provision and pricing.