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Banks put their heads on the block

Block trades help to make ECM bankers look busy in quiet times. But their success rests on a knife edge. • Peter Koh reports

THIS YEAR DOZENS of bought deals have hit the equity markets as cash-hungry vendors rush to take advantage of short, sharp, news-driven rallies to offload non-core holdings. Banks that bid for these blocks do so with mixed feelings. Uncertainty, volatility and rabid competition have made them exceptionally risky. And vendors are forcing banks to take on more market and stock-specific risk than ever, pushing for fully bought deals or aggressive backstop agreements to guarantee price certainty.

A bought deal in a volatile market is not the most appetizing business for an investment bank. But there is nothing else on the menu to satisfy the hunger for league table position. There were just 98 IPOs globally in the first quarter of the year, raising only $2.6 billion, down 85% from the first quarter of 2001. Global equity capital market volume in the first quarter was down 56% from last year and 30% of this now comprises bought deals. Most banks have been competing fiercely for the dubious pleasure of doing these lumpy trades, ensuring competitive bids. It's a great situation for vendors, but for ECM bankers with eyes bigger than their stomachs it's a possible recipe for painful - if not terminal - indigestion.

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