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* Pfandbriefe issuers pay less for ECB allocations
* Corporate bankers dismiss talk of discounts
* Bankers argue fees tied to long-term costs
By Tom Porter
LONDON, Sept 30 (IFR) - Investment banks are facing tougher
fee negotiations from bond issuers in the era of central bank
purchases, with covered bond bankers receiving zero fees on
portions of some deals and corporate issuers also eyeing a
Analysts have long complained that the European Central
Bank's ultra-low interest rates have choked off bank profits.
But now they face another unintended consequence, with
issuers no longer prepared to pay for having their bonds sold to
the ECB, which has been buying assets as part of a 1trn
monetary easing package.
One of the best known German Pfandbriefe issuers now pays
lead managers half fees on the portion of its bonds that are
allocated to the central bank, its treasurer told IFR.
"That is how we do it," he said. "I can't speak for anyone
else, but we have little complaint from the banks so I assume it
is no problem for other issuers."
One Belgian covered bond issuer pays zero fees on ECB
allocations, according to a FIG syndicate head, who added that
the practice was still not widespread.
ECB allocations have been 15%-20% in recent covered bonds,
down from as much as 50% in the early days of the purchase
programme, said the banker.
The central bank has acquired just short of 195bn of
covered bonds since October 2014 and with corporate bonds added
to its shopping list in June, some corporate borrowers have also
smelled an opportunity to make savings.
Senior DCM bankers this week told IFR some of their issuing
clients had raised the issue of fee discounts for ECB
allocations in the past few months.
However, the question has typically come from smaller
companies that issue less frequently, and therefore have weaker
relationships with the bigger banks, they said.
Brendon Moran, global co-head of corporate origination at
Societe Generale, described discussions on the subject as "idle
"It presents a lot of practical problems," he said. "Not
only in execution from a disclosure and allocations policy
perspective, but it could also result in the deterioration of
the relationship between clients and banks in the long-term."
SHORT-TERM GAIN, LONG-TERM PAIN?
One head of debt syndicate at a European bank dismissed the
issue as a "storm in a tea cup", and said his institution would
push back if companies asked for a discount.
Most corporate DCM bankers were equally dismissive of
issuers' chances of cutting fees, but some confessed they were
still worried by the prospect.
"Though I haven't seen it happen on any deals we have worked
on, it has been talked about and I am concerned," said one head
of corporate DCM.
"Fees, of course, are completely negotiable, but it doesn't
make any sense to me. It's a bit like saying, 'We know Pimco and
BlackRock are going to buy this deal, so we're not paying you
for that allocation'."
Others were quick to point out that fees were related to
long-term costs, which remain constant regardless of the size of
the ECB's allocation.
"DCM is an advisory-led business and requires significant
investments in infrastructure and people to be able to
effectively advise on and distribute new issues - fees are in
place to cover these costs and seek returns for shareholders,"
"If fee erosion results in these activities becoming
uneconomic, issuers may soon see competition and choice in the
market reduce as banks invest elsewhere. That is not a desirable
outcome in the long-run for any issuer."
(Reporting by Tom Porter, Additional reporting by Laura
Benitez, editing by Matthew Davies)