Aside from the obvious budget issues, having the relevant expertise and resources in the sector, current capacity of the bank/if they have time to take on another deal, etc, how do banks decide whether to pitch for a deal?
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Minimum deal size/fee. You can bet your ass that if there is a deal of a certain size that the bank didn't pitch that goes through the group head is calling you in about 10 mins to explain.
Also, future business. For example, if the company is expected to throw a lot of fees at the bank in the future, they may do some BS thing now.
It all has to do with the cash money.
Thanks for commenting. Is there anything aside from fees and elements mentioned in the OP that can prevent a bank to decline a deal?
Reputation risk. For example, the CEO could be a shady guy, or the bank could just decide that they do not want to do business with the company or sector - pornography comes to mind. Does X bank really want their name plastered up next to some XXX company?
Sometimes the risk profile is too steep or the portfolio group will determine that the bank has too much exposure to one sector. Banks may turn down loans to O&G companies when oil prices are very low, for example, just because they have enough exposure as it is.
That's interesting thank you.
Do the bankers often come together and assess the risk profile periodically to determine what they can or cannot take on say in the next 6-12 months? What if they have a long-lasting relationship with this particular client, who is very credible with a sound financial profile, and they realise they cannot take on more from this client's sector?
Banks have internal committees that determine this. Basically, for every single deal that a bank puts its name on, there is internal approval that considers all of these factors. All of that goes into the meeting.
There is always back and forth between the senior relationship bankers and the internal guys that manage this stuff and it really comes down to weighing the potential impact on the bank as a whole.
Got ya. Thanks so much for taking the time to reply :)
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