The document claims that “banks are conflicted” in the IPO process.
It argues that the banks, who offer a wide range of services, always have a motive in delivering good value share issues to institutional clients and therefore have a tendency to offer shares too cheaply.
Its strongest criticism is reserved for the way the banks, or bookrunners as they are known in flotations, use the investor feedback they take during an IPO process.
In an extraordinary attack over two graphically illustrated pages purporting to demonstrate the distortion of investor feedback, STJ argues that “pricing feedback is distorted by the systematic removal of many of the investors providing reference data.”
It also says that the “pricing feedback is manipulated by showing lowest valuations given to joint bookrunners and ignoring higher valuations generated.”
In the examples used, STJ names Deutsche Bank, Barclays Capital, Goldman Sachs and others as bookrunners in question.
The banks declined to comment when contacted by City A.M..
STJ, which has just been appointed alongside Lazard to assist with the flotation of Bankia, a Spanish banking group, said in the document that its proven techniques are designed to optimise value. It says its role can be either “visible” or “invisible”.
STJ’s main competitors in the race for IPO advisory roles includes blue-blooded firms such as Rothschild and Lazard.
In it sales document, STJ says that its independent, specialist advice can ensure success in “mission critical” capital markets transactions. It says its techniques are designed to optimise value and it states that there is strong evidence of underpricing in IPOs.
It claims to offer unique management of the marketing process, a skill the bookrunners also offer. It then says it offers transparency and control throughout an IPO.
“We work with the banks, not against them,” STJ says, although some of the banks we spoke to disagree with that sentiment.
STJ says that its services, which are largely provided to private equity groups wishing to sell into a flotation, do not add extra cost. It says that fees are largely payable for success and are structured out of overall syndicate fees.
Some bankers who spoke to City A.M. in the past few days agreed that there can be a role for so-called IPO advisers who perform the kind of role that STJ does.
But they said that often, in the case of STJ, there was tension between them and the banks.“They can create a lot of grief and workload,” one banker said.
One source said that the likes of Rothschild and Lazard did a lot of preparatory work on flotations that was useful but that STJ most often came in at the end of a process and tinkered with issues like the distribution of stock. “That’s where we find them trying to second guess the proces.”