By Philip Wright
LONDON, March 10 (IFR) - It will come as no surprise to
anyone with even a passing knowledge of the new issue bond
markets, but investors are not happy with the way in which paper
This is nothing new: grumbling has been a way of life for
many portfolio managers for a long time now - perhaps ever since
the very first portfolio manager.
But there is now the apparent possibility of the SEC getting
involved, with Goldman Sachs announcing it is co-operating with
an inquiry into "allocations of and trading in fixed income
Others (including Citigroup and Morgan Stanley) have been
approached, although it is unclear whether the SEC is serious
about the probe or just going through the motions.
Bankers claim to be relaxed about the investigation,
dismissing comparisons with the global research settlement that
saw the industry hand over billions of dollars in fines for the
deeply dodgy way banks allocated shares in hot internet IPOs at
the tail-end of the last century.
Internal rules are now in place for bond sales, syndicate
managers say, and they are confident that their working
practices are beyond reproach.
They would not be human, though, if they weren't a little
nervous. In the current climate, after all, goalposts are
nothing if not moveable. And in certain sectors - rates setting,
FX trading - what was once standard market practice might well
now put people in jail.
Nonetheless, at the risk of failing to play the popular
international sport of banker-bashing, it must be said that bond
syndicate officials do face a rather thankless (though well
Order books that are more often than not multiple times
covered create a seemingly unsolvable conundrum. And the larger
the transaction, the more problems it seems to throw up.
When Apple sold its then record-breaking US$17bn
multi-tranche deal last April, it was swamped by more than
US$50bn of demand from some 900 accounts, comprising about 2,000
separate orders. Five months later, Verizon's remarkable US$49bn
offering attracted in excess of US$100bn - from 900 accounts and
PIECE OF THE ACTION
Everybody wanted a piece of the action. So what's a poor
syndicate jockey to do when caught between a BlackRock and a
There are of course good arguments to be made for ensuring
that even relatively small investors get a decent crack of the
whip. But let's face it: when the big boys are putting in single
orders of US$5bn - or even US$7bn, as they were rumoured to have
done in the Verizon deal - then they are always going to be
treated better, especially when a syndicate manager is under
pressure to get bonds off the books quickly.
What is not required, though, is more regulation - not least
because of the unintended consequences that often result. When
it comes to allocating hot deals fairly, for example, a large
part of the problem stems from the lack of liquidity caused by
regulators clamping down on banks' trading operations in the
Because investors - especially the biggest - know that they
will pay through the nose to source bonds in the secondary
market, if they can find them at all, the pressure to get a
decent allocation in the primary sector has gone up, while the
chance for smaller players to get looked after has diminished.
Is it fair that syndicate desks favour those with the
biggest orders? Perhaps not. But as everyone's Mum never tired
of saying, life's not fair. And nor is the process of allocating