Morgan Stanley and Goldman Sachs have foregone millions in fees to juice their rankings on league tables of most prominent investment banks, Bloomberg Businessweek’s David Welch reports. (spotted by Felix Salmon)
The most recent example was the blockbuster merger between Forest Laboratories and Actavis, a deal worth $US25 billion. Neither bank was involved in transaction, although both banks had previously done business with Forest. They enjoyed so-called “tail” clauses included in their previous contracts, which would pay out fees if a deal was ever realised, even if they weren’t involved in it.
But the banks instead decided that being able to claim credit on a deal in which neither was involved, thus boosting their status on rankings of biggest banking players — was worth more than the fees themselves.
The trade highlights the importance of league tables to investment banks — which use them to pitch for new business — and the lengths to which banks will go to climb the rankings. Firms also agree to provide financing or other services to get credit on deals they played almost no role in. The Forest deal helped Morgan Stanley solidify its position as the top M&A adviser this year, in both Bloomberg’s and Dealogic’s rankings.
Welch further explains, “The campaign to be included as an adviser is typical of the competition among investment banks in high-stakes takeovers. Firms sometimes try to get on a deal just before or after an announcement.”