Awards for Excellence: Flipping investment banking

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Lines are being blurred as advisers get better at financing, and firms that used to lead through balance sheet up their game in advisory.

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If you had fallen asleep a few years ago and woken up just in time to pick up Euromoney’s awards issue, you might be forgiven for thinking that there must have been a mistake at the printers. Goldman Sachs is the world’s best bank for financing? Bank of America Merrill Lynch is the world’s best bank for advisory? Shouldn’t that be the other way around?

No, it shouldn’t. One of the strongest themes to come out of our pitch meetings this year is the extent to which banks have broken out of their traditional comfort zones into parts of the business that seem far from their natural turf. Of course Goldman is a financing bank: just look at what it will commit to the Amazon/Whole Foods deal. In fact, it has already committed $20 billion to investment-grade bridge deals so far in 2017. 

By the same token, BAML’s lead advisory role in the agreed Bayer takeover of Monsanto shows how its advisory franchise has deepened, but it has also shown its structuring chops with deals such as Actelion’s sale of its existing pipeline to Johnson & Johnson. 

These contrasts make for a nice story, but there might be more to them than meets the eye. When Goldman Sachs tops the investment-grade bridge loan league tables for the year, you can be sure that it knows it will be able to sell those commitments down. Money is so cheap and there is so much of it looking for a home that underwriting is a relatively riskless enterprise for the right client. 

Investment banks such as Goldman and Morgan Stanley are, therefore, able to commit eye-watering amounts to M&A deals in the sure knowledge that there is appetite and capacity out there to take it. Things might be very different if the environment for syndication were a little less accommodating. 

By the same token, BAML’s rise up the advisory ranks can be explained by rather more traditional bank activities. One of these is hiring: the US bank has invested heavily in buying advisory talent from competitors such as Goldman and Morgan Stanley. Another is its middle-market banking franchise in the US. This is seen as a key growth channel for its advisory business and will likely be an effective source of deal flow. But that will come from relationships built on BAML’s core business of bank lending. 

Even for the world’s best banks in our awards this year, while everything changes, everything remains the same.