League tables can be funny things. So highly prized are the upper echelons that across the syndicated loan market fierce arguments have been known to rage over specific roles played by certain lenders on a transaction.
Banks fall over themselves to announce that they are co-ordinating physical bookrunners and participating mandated lead arrangers, rather than just a lowly lender. Naturally, the most highly prized spots are those at the very tops of deals.
Everybody, of course, wants to lead the market. Everybody wants to win the mandates that will see them leading the biggest, most prestigious deals in a particular sector. But what’s the point of being a leader if there are no followers?
The loans market is suffering from a surplus of leaders. Quite simply, there are too many banks that want to play at the very top of the field. Borrowers are so spoilt for choice with so many lenders competing to take top tickets on their transactions that they find that, instead of going through a syndication process, they can simply complete the deals as clubs.
The originate to syndicate model is slowly disappearing on many vanilla transactions, and with it the valuable fees that can make lending at the top level of a deal so attractive in the first place.
This is unlikely to last. Basel III regulation is looming on the horizon, and with the Liquidity Coverage Ratio requiring lenders to hold more capital against their credit lines, banks will have to find a way to move more deals off their balance sheet.
Already, we are starting to see the beginnings of this: investment grade transactions are being tentatively traded in the secondary markets, shadow banking lenders are dipping their toes into the sector and the cogs are slowly turning to find a way to bring retail investors into the leveraged market.
But there is still a bitter pill to be swallowed. Many loans bankers know that the distasteful truth is that the market has to shrink. They expect further bank consolidation, or for some lenders to simply step back from competing for top mandates in certain markets.
Fewer banks pushing to participate in each transaction could certainly mean an end to the competitive environment that is partly responsible for pushing margins down, a welcome move as banks’ own funding costs have drifted steadily up over the last few years.
But although there are many bankers willing to admit that the number of lenders needs to shrink, there are, unsurprisingly, fewer names volunteering to be the ones to bow out of the lucrative top end of the market.
After all, those league table positions are worth fighting for.
