NOTWITHSTANDING worries over the Eurozone and jitters about the state of the investment banking sector, there were some happy bankers at Deutsche Bank yesterday.
Deutsche is the lead adviser on US group Colfax’s £1.5bn bid for Charter that was made yesterday, higher than a rival bid from the UK group Melrose.
There are not many bids around these days so to get in on the act of the larger ones around is an understandable reason for celebration. Deutsche was also the lead broker for Northumbrian Water’s defence when it was courted by Li Ka Shing in a £2bn deal recently.
In addition, Deutsche last week extended its number of brokerships by being taken on by Stagecoach alongside Nomura.
So, is there a pattern to this activity? Deutsche’s aim, since hiring Nick Bowers from Credit Suisse as co-head of corporate broking in 2009 to work alongside Charles Wilkinson, has been to reach 25 FTSE 100 broking clients.
To date, it has taken its FTSE 100 client list from 15 to 20, with confidence that others will shortly follow. Alongside Goldman Sachs and Barclays Capital, and to some extent RBC, Deutsche is in the ascendancy in terms of brokerships.
Brokerships in themselves are not a profit-making business; but the rationale, as I have argued before, is that they traditionally lead to an investment house being involved in investment banking transactions if and when they arise.
In Deutsche’s case the bank acted as lead financial adviser and broker to Reckitt Benckiser on its £2.5bn for SSL, a clear reward for cementing a relationship with the company by being its corporate broker.
Indeed the bank has estimated that its share of the UK investment banking market has risen by 50 per cent since it started growing its number of brokerships in 2008.
There is no guarantee, however, that winning a brokership will lead automatically to riches in terms of fees. Goldman Sachs, for example, became joint broker to Autonomy in June but found itself in the back row of the advisory team alongside UBS and Citigroup, when the software group was recently bought by Hewlett Packard. Instead, Autonomy chose Frank Quattrone’s boutique investment bank as its lead adviser.
As some win mandates, others obviously lose them. UBS, Citigroup and Nomura look quite vulnerable, though none look ready to give up the chase completely.