Investors flex their muscles in battle over block trades

David Hellier
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Investment bankers of a particular type, those that count themselves as equity capital markets experts, will be thankful for block trades, the deals that see companies raising funds by selling off stakes in other publicly-listed entities.

Whilst other forms of activity so far this year have nosedived – the amount of money raised in rights issues by companies in Europe, for example, $2.8bn (£1.8bn), is the lowest year to date since 1999 and 79 per cent down on this time last year – there have been block trades in abundance.

So far the volume of blocks in Europe is 49 per cent up year on year at $27.5bn via 78 deals, including sales of stakes in Direct Line insurance, TDC, Ziggo telecoms and earlier this week the airbus parent EADS.

The sale of around £2bn shares by the French media group Lagardere in EADS helped catapult Bank of America Merrill Lynch to the top of the league table for such deals, overtaking UBS which has been doing surprisingly well.

UBS, still in a state of flux after the decision by its board to trim down its investment banking activities, has acted on many of the major deals this year, including Direct Line, Intu Properties, TDC, Banca Generali and Perform Group.

Goldman Sachs lies in third, followed by Deutsche Bank in fourth, with Barclays in seventh position.

As volumes have increased, however, so have the levels of controversy. With comparatively little M&A, rights issue and IPO activity around (although the IPO market especially in London is showing signs of a pick-up), banks have fought tooth and nail to get mandates to handle blocks.

Some say that Barclays ended up with its large (14 per cent) stake in Ziggo because it bid too high for the shares it was then unable to distribute. There have been other controversies, such as when Bank of America Merrill Lynch sold a block of shares in Saipem very closely ahead of a profits warning from the Italian oil and gas group.

Allianz Global Investors, the fund management arm of Europe’s biggest insurer Allianz, has threatened to stop participating in block sales, according to a letter which went to banks. “I am writing to express our growing frustration and investment anger at the way in which many equity placings are handled,” said Neil Dwane, chief investment officer of Europe.

The London IPO market came to a near standstill a couple of years ago after investors such as BlackRock voiced their concerns about the way in which banks were handling new issues and the market, though recovering, is still not out of the hospital ward even if it is clear of intensive care.

Investors will always want perfect allocations and a keen price and can not always be satisfied. They also want an increasing amount of information, sometimes too much, about the level of demand for the order book. But bankers would be advised to stem the opposition to the way block trades are being handled quickly, or suffer the consequences.