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Best Global equity house: Morgan Stanley |
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Also nominated: Goldman Sachs and BAML |
In equity capital markets the old US investment banks are to the fore and often teamed together on large international deals, including a resurgent Goldman Sachs and an increasingly sure-footed Bank of America Merrill Lynch. However, they are narrowly led by Morgan Stanley. Raj Dhanda, head of global capital markets, says: “A number of the equity deals that emerged in the aftermath of the financial crisis were transformative. They helped rebuild confidence among investors, the private sector and public officials. We led many of these deals due to our global capital markets expertise, as well as the strength of our institutional and retail distribution.”
The firm’s traditional ECM strengths lie in IPOs and equity-linked and both capabilities were much in demand by issuers in the developed markets and the growth markets of Asia and Latin America.
Morgan Stanley served as global coordinator and sole stabilization agent on the largest equity offering ever, a $70 billion follow-on for Petrobras. Dan Simkowitz, chairman of global equity capital markets, says: “To be named stabilization agent was a huge recognition of our investment in the equity franchise in Brazil and across emerging markets.”
It’s a sure sign that one firm is having a stellar year when rivals argue that certain classes of its deal record ought not to be taken into consideration. “We didn’t get credit for selling down our stock from the US Treasury,” huffs one rival, “so why should Morgan Stanley?” Perhaps because its biggest deals for the US Treasury didn’t involve its own stock.
Morgan Stanley, acting as sole bookrunning manager, priced a $10.5 billion secondary offering of Citigroup common stock on behalf of the US Treasury, this deal coming at the end of a long process of dribbling shares out into the market on the government’s behalf. At $31.9 billion in total, the US Treasury’s disposition is the largest monetization of a public shareholding in US history. Morgan Stanley acted as the Treasury’s capital markets adviser and agent for the entire disposition.
Morgan Stanley then served as left lead bookrunner and stabilization agent on the largest IPO in US history, the $23 billion deal in which the US Treasury returned General Motors to public ownership. “There was so much pressure on that GM deal, more than I have ever experienced,” Simkowitz says. “The shares had to be priced to rise modestly in the aftermarket because the US Treasury had more to sell. But the government absolutely could not be seen to be selling out at a bargain valuation leading to a first-day pop or have them drop. We needed good perspectives around both fundamental value and what the market was willing to pay and we delivered in size. It went up around 5% on the first day.”
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“A number of the deals that emerged after the financial crisis were transformative. They helped rebuild confidence among investors, the private sector and public officials” |
He adds: “The outcome with GM gave the Treasury confidence to execute on the clean-up trade of Citi. The first two-thirds went out very quietly in a dribble-out programme. Then the Treasury had confidence in us to do the final block quickly, very close to market, in a two-hour accelerated bookbuild with no pre-marketing. We ran one of the great auctions on that block.”
Simkowitz also highlights the firm’s role as joint active bookrunner in pricing a $9.2 billion follow-on offering for BlackRock, allowing Merrill Lynch to reduce its economic ownership to 9.8% from 33.9%, and PNC to reduce its to 20.3% from 24.3%. “BlackRock is the world’s largest institutional fund manager. As you may imagine they take a very active role in distribution and placement of their own shares. They want to know about demand from all sources from sovereign wealth funds to retail investors. So when it became clear that Bank of America and PNC needed to do this, BlackRock took a very active role to ensure that Morgan Stanley was included as a lead bookrunner,” he says.
In these choppy capital markets, issuers want the leading equity firms on their side. But every firm has deals that get withdrawn, pulled or that only just get done and that might take a while to be judged as either successes or failures. Morgan Stanley was a lead on the Glencore IPO. The deal was successfully anchored by large cornerstone investors – a practice common in Asia and now spreading across the ECM world – and so it got done even amid a lurching sell-off in commodity markets and amid lingering concerns about Glencore’s governance.
“A lot of the cornerstone investors had come to us and expressed interest when we previously did a pre-IPO convertible for Glencore,” says Simkowitz. “As the markets sold off and remained volatile the cornerstone investors provided stability and an important source of long-term shareholders.”
Time will tell on that.
