DealTalk: Brokers sharpen elbows as firms rethink ties

By Kylie MacLellan

LONDON (BestGrowthStock) – Last month’s appointment of new corporate brokers by Resolution Plc (RSL.L: ) is just the latest example of a major company ditching its broking adviser and bringing in a new team for a potentially lucrative relationship.

Resolution, which dropped Citigroup (C.N: ) in favor of RBC Capital and Barclays Capital (BARC.L: ), was among six FTSE 100 members to make changes to its broking partners in October and November alone — signaling a renewed willingness among companies to seek fresh advice and a more open field for investment banks to secure an inside track to deal-making mandates.

Having had few changes during the credit crisis, corporate broking relationships are experiencing a shake-up this year as relative newcomers and smaller advisors look to grow by charming disillusioned clients from rivals.

A mainly British phenomenon, corporate brokers act as a link between a listed company and its investors, as well as advising on issues such as mergers and acquisitions, fundraising plans and company strategy.

“There was very little review activity through the crisis … as companies sensibly focused on navigating the credit crunch rather than reviewing advisors,” Alisdair Gayne, head of corporate broking at Barclays Capital (BarCap) told Reuters.

BarCap, which entered the broking field last year, has gained four FTSE 100 clients.

Bankers cite a host of factors as contributing to the step-up in reviews, including people changes — both among senior management at companies and movements within broking teams — which can be the impetus for ending what are often long-established relationships.

Disappointment is another factor. Some companies did not like the advice they received, while those not involved in major recapitalization transactions said they felt brokers were concentrating their efforts on those clients who were.

“It is very much a relationship-based business,” said Ed Byers, head of corporate broking at J.P. Morgan Cazenove (JPM.N: ). “Part of the decision to have a review is probably a result of how companies perceive their existing brokers to have performed over the last couple of years in what were quite challenging markets.”


J.P. Morgan Cazenove and Bank of America Merrill Lynch (BAC.N: ) remain the two biggest FTSE 100 brokers with 38 and 32 blue-chip clients respectively, both up one from November last year, according to business and financial website Hemscott.

Third-placed UBS (UBSN.VX: )(UBS.N: ) is set to end 2010 with 27 FTSE 100 clients, down from 31 in November last year, with its losses including life insurer Legal and General (LGEN.L: ), which switched to Barclays Capital and Bank of America Merrill Lynch.

Despite Deutsche Bank (DBKGn.DE: ) and Morgan Stanley (MS.N: ) (Read more about the money market today. ) closing in — both are up two blue-chip firms this year to stand eight clients behind, having been 14 behind at the end of last year — UBS is confident it will retain a top-three position.

“There will be further pitches for new brokerships coming up over the course of next year and we see plenty of opportunities to grow our client base across the FTSE 350,” said Tim Waddell, joint head of UK investment banking at UBS.

Although advisers are not usually paid a retainer, corporate broking roles are hotly contested because as well as a source of prestige, they can often serve as a gateway for more lucrative equity capital markets (ECM) mandates.

While a few banks, such as Goldman Sachs (GS.N: ) — which says it has 10 FTSE 100 clients — have managed to remain at or around the top of ECM league tables despite being relatively smaller in corporate broking, those firms which have the biggest presence in broking do tend to dominate ECM deals.

But changes are set to continue, with more brokerships up for review early next year and brokers busy courting companies to build those ever-important relationships.

“You are not going to be successful in winning a mandate if the first time you meet someone is when you go in to pitch,” said Phil Raper, head of corporate broking at Goldman Sachs.

With smaller players actively looking to grow their market share, the increased competition in broking could help level the playing field.

“As competition within corporate broking increases, we are likely to see the dominance of some of the established broking firms slip which will further open up UK ECM league tables,” said Barclays Capital’s Gayne.

(Editing by David Holmes)

DealTalk: Brokers sharpen elbows as firms rethink ties