Before the summer, almost every deal that came to market was heavily oversubscribed, and all a bank needed to do to attract a flood of subscriptions was to open a book. It was a seller’s market. Now, though, it has become very much a buyer’s market. "It used to be that the power in the debt markets lay with the borrowers," says Demetrio Salorio, deputy head of debt capital markets at Société Générale. "Now we are getting into a market where investors have more power."
There are various causes of this new dynamic. Not least are investors’ concerns about the credit quality of financial instutions, which has led to dramatically wider credit spreads for this sector. Furthermore, the decline of leveraged investors such as SIVs, and retrenchment by others such as bank treasuries, has left the classic traditional investor – so-called real money – firmly in charge.
One consequence of this is that it casts the league tables into a new light. In the past, investment banks have been able to boost their league table standings by underwriting short-dated floating rate notes and selling them to SIVs and banks’ treasury functions. Frequently, such deals were originated at such a discount as to make the deal a source of not inconsiderable loss.