DCM Origination Strategy for Investment Bank
What are the usual DCM origination strategies deployed by banks that don't have a balance sheet (i.e. do not provide corporate loans)?
I understand that the DCM businesses in the FIG / SSA space are quite commoditized. Successful DCM origination teams often provide additional value-add (e.g. engaging clients' senior management in strategic discussions), on top of the usual intel (e.g. market and price updates) provided by all the other banks.
However, corporate issuers usually give the DCM mandates to banks that already have existing relationships (more often than not, lending relationships) with them. In this case, how would a bank without balance sheet/security firms actually compete in the space?
Some of the examples might have been oversimplified but would love to hear your thoughts on this.
Pray for a diversity mandate
They aren’t competitive. Smaller shops may be thrown a co-man role if they can bring in a specific investor. Otherwise a pure advisory bank might negotiate a JBR role as part of the fees in an m&a mandate. Pure advisory shops don’t have the distribution capacity to be real players
Even if firms without a balance sheet (e.g. pure advisory banks) try to leverage the M&A angle, I imagine it would still be quite challenging given that the client would usually ask for a bridge-to-bond kind of arrangement. I always wonder how would firms like Morgan Stanley (might be a bad example as I don't know its business well enough), advisory-focused banks, compete in the DCM market?
If said banks have a strong sales force and/or trading desks, perhaps they could try to bring potential issuers more private placement opportunities and/or liability management ideas (e.g. OMR/tender)?
It's all about the lending business. Businesses that regularly issue debt often have an internal ranking of banks based on lending activity, size of revolver, etc that they reference to assign active bookrunner roles.
I imagine that (i.e. all about lending) would be quite true for the corporate space. The SSA/FIG DCM space is probably leaning more towards closer/better coverage (e.g. market and pricing updates, constant flow of funding ideas AT1/T2) and occasional reciprocal transactions (e.g. engaging the potential FIG issuer for the bank's issuance).
What if you're the Head of DCM in a bank that has no lending capability? What would you do to build the business?
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