There are too many leaders among banks

The loan market is groaning under the weight of ambitious lending banks hoping to participate at the very top level of transactions

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But this surplus of senior lenders is symptomatic of a general overpopulation in the loan market that cannot last.

League tables can be funny things. So highly prized are the upper echelons that across the syndicated loan market fierce arguments have been known to rage over specific roles played by certain lenders on a transaction.

Banks fall over themselves to announce that they are co-coordinating physical book runners and participating mandated lead arrangers, rather than just a lowly lender. Naturally, the most highly prized spots are those at the very tops of deals.

Everybody, of course, wants to lead the market. Everybody wants to win the mandates that will see them leading the biggest, most prestigious deals in a particular sector. But what’s the point of being a leader if there are no followers?

At the moment, the loans market is suffering from a surplus of leaders. Quite simply, there are too many banks that want to play at the very top of the field.

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Borrowers are so spoilt for choice with so many lenders competing to take top tickets on their transactions that they find that, instead of going through a syndication process, they can simply complete the deals as clubs.

The originate to syndicate model is slowly disappearing on many vanilla transactions, and with it the valuable fees that can make lending at the top level of a deal so attractive in the first place.

This is unlikely to last. Basel III regulation is looming on the horizon, and with the Liquidity Coverage Ratio requiring lenders to hold more capital against their credit lines, banks will have to find a way to move more deals off their balance sheet. 

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