EuroWeek was mildly insulted to hear this week that it was no longer to be trusted with book update information from Credit Suisse. That was until we gathered that the bank’s decision to keep book sizes secret is being enforced not just with the press, but also with investors participating in the emerging market deals that the bank is working on.
The bank has made the change — and first enforced it for its Ematum deal last week — in an effort to better stand up to scrutiny from increasing scrutiny of the industry by banking regulators with regard to communications with investors about demand.
Bankers at Credit Suisse reckon that book size can be a misleading indicator of appetite because investors inflate orders depending on how severely they think they will be scaled back, not based on how much they actually want to purchase. They also argue that book sizes can change hugely during pricing, especially if big investors drop out, and that the quality of investors matters a lot more than the quantity.
Wanting investors to be looking at deals based on the merits of the credit and the pricing being offer is noble and sensible — and somewhat amusing to hear after a year’s worth of EM deals being sold to everyone and their mum because the technical environment was so good.
But it does make the job of a syndicate manager a little harder — one of their roles is precisely to imbue a sales team with enough gung-ho enthusiasm about a deal that they in turn can convince investors that they are onto a good thing. While that doing that without book updates is possible, it will be more challenging.
What makes it even harder is that Credit Suisse will be out on a limb with this unless — as has happened in the high yield market — other banks can be sold on the benefits of keeping quiet. Most EM bonds are joint mandate and at the moment Credit Suisse is the only bank on the street enforcing this rule upon itself, leaving investors free to ask any other bank on a deal for the book update instead.
In case you missed it, by the way, the final book size for Ematum was somewhere between $600m-$700m for the $500m deal, according to a fund manager. Credit Suisse and BNP Paribas arranged that deal. No prizes for guessing where the fund manager got that information.
BNP Paribas did make some attempt to uphold Credit Suisse’s wishes, however. While that bank updated investors on book sizes as the deal was being priced, no amount of cajoling could get them to directly tell us, the press, for the purposes of wider distribution.
One banker argued that while he was happy to publicise details where it would help a trade, the core of EM is made up of a small number of desks and they are a loyal crew. Some have known each other longer than their own wives. On this occasion he argued he wouldn’t talk to the press about the Ematum book size out of respect for Credit Suisse and, more specifically, the people who work on that desk that are trying to make this new regime work.
We understand that this is not going to be a hard and fast rule for the bank, though, and will be considered for each deal separately, regardless of whether CS is also on the mandate.
Investors may be even more fickle. As a buyer, you thrive on information. If you’re constantly in touch with one bank throughout the process of a deal being priced, it will take some will to switch at the last minute to place your order through a different bank. The Credit Suisse sales force will now have to work harder to maintain their relationships.
On EM deals banks typically work to build a pot of orders together and allocate together, but issuers do sometimes ask what the contribution of each bank was. If one bank is consistently generating fewer orders, the sharky world of DCM may exploit that to win business, no matter the group effort at the time.
What Credit Suisse is doing is in the spirit of the post-financial crisis world, where banks are anxious to avoid accusations of having mis-sold deals. And as a bank that seems more focused on bespoke EM deals — the Ematum trade was a repackaged Credit Suisse loan — rather than being in the thick of flow business, Credit Suisse may be right to protect as much proprietary information about its deals as it can.
It is an honourable thing to do, but Credit Suisse’s sales team — and its bottom line — may not look kindly upon it if it ever wants to dive headlong back into the mainstream flow of EM bond business.