JPM,BAML, Citi can "throw around" their huge balance sheets

Its often said that JPM,BAML, Citi can "throw around" their huge balance sheets contributing to their success in contrast to GS,MS which can't. What exactly is meant by this phrase and how do GS/MS differ? I assume it has something to do with the retail banking wing.

 
Best Response

The megabanks have access to huge deposit bases, etc through which they can provide additional amounts of corporate credit, leveraged lending etc...IB services are commoditized (at the end of the day, the DCF that JPM does is no different than the one that the WASPy banker at MS or GS did), so he who provides credit provides the additional value and thus can win the mandate...it all either comes down to providing the balance sheet or owning a relationship

 

Only concerns their retail platforms to the extent that those banks are levering the balance sheet via the use of deposit funding. The retail distribution is more of a broker business and not as balance sheet intensive as the rest of the bank.

When people say JPM, BAC, C and WFC throw around their balance sheet, they really mean that those banks leverage their credit relationships into capital markets and advisory roles/fees. For example, if JPM and BAC lead a credit facility for some company, you better believe that JPM and BAC will have a significant role in any capital markets offerings. And if the company is considering a strategic transaction, odds are their lead credit relationships will be invited to pitch for the deal (alongside GS, MS and other more traditional advisory shops).

Just because they throw around the balance sheet doesn't mean their investment banking fees should be discounted, it just means they probably earn alot of fees that aren't purely relationship/advice driven.

What do you do when you want to make sure a bank will renew/refi your credit facilities/loans? You let them earn incremental fees by bookrunning your equity/debt offerings. Some banks will even add these capital markets fees into their credit risk models when calculating expected returns on the relationship.

 

To clarify, it's still a competitive process for any capital markets business, but the lead credit relationships always have an inside track (I'd say IPOs and M&A transactions tend to be the exception).

There's no one saying we'll pull the credit if you don't let us bookrun deals because, honestly, it never comes to that. Companies understand that (especially in the 2H 2007 - 1H 2009 market) they need to keep their lenders happy because liquidity is VERY important.

And, yes, specifically related to M&A, there is such a thing as tying which is illegal. Banks cannot explicitly provide credit contingent on other business. But, trust me, everyone playing understands the game and no one needs to make explicit guarantees. If I sound jaded, I am.

Also keep in mind that just leading the credit relationship can often be very competitive. In a normalized market, companies have many choices of lenders and will usually choose someone with credit and capital markets expertise to begin with.

 

"When people say JPM, BAC, C and WFC throw around their balance sheet, they really mean that those banks leverage their credit relationships into capital markets and advisory roles/fees. For example, if JPM and BAC lead a credit facility for some company, you better believe that JPM and BAC will have a significant role in any capital markets offerings."

Exactly. BAML is #1 in LevFin for a reason. JPM and WF have very well respected DCM/ECM and LevFin too and you can bet it's not a coincidence. Also, these 4 big banks are able to sell multiple products to corporate clients. Advisory AND the capital to do it? Makes it very easy for dominating dealflow and league tables. If you want good deal experience and stability, nothing is better than one of these 4 (except maybe with Citi, their problems are a dime a dozen).

 
1styearBanker:
"When people say JPM, BAC, C and WFC throw around their balance sheet, they really mean that those banks leverage their credit relationships into capital markets and advisory roles/fees. For example, if JPM and BAC lead a credit facility for some company, you better believe that JPM and BAC will have a significant role in any capital markets offerings."

Exactly. BAML is #1 in LevFin for a reason. JPM and WF have very well respected DCM/ECM and LevFin too and you can bet it's not a coincidence. Also, these 4 big banks are able to sell multiple products to corporate clients. Advisory AND the capital to do it? Makes it very easy for dominating dealflow and league tables. If you want good deal experience and stability, nothing is better than one of these 4 (except maybe with Citi, their problems are a dime a dozen).

dude. YOU WORK AT BAML. when you keep self-promoting, it's only fair that you point out that you fucking work there. look at the high yield league tables: http://www.leveragedfinancenews.com/data/high_yield_league_tables.html . There is no question that BAML LevFin is great, but it is not #1.

after checking out the league tables, i went to check out JPM's website and look what I found:

Market Leadership

1 Global Loan Syndications

1 Global Debt

1 Global Long-term Debt

1 Global Investment Grade Corporate Bonds

1 Global High Yield Debt

1 Global Convertibles

1 U.S. Loan Syndications

1 U.S. Investment Grade Corporate Debt

1 U.S. Long-term Debt

1 U.S. Convertibles

2 U.S. Federal Credit Agency

1 EMEA Emerging Markets Bonds

1 Latin America Emerging Markets Bonds

Source: Thomson Reuters, FY2009

Awards Credit Derivatives House of the Year (Risk, 2010) Credit Portfolio Manager of the Year (Risk, 2010) Best Bank in Credit Default Swaps (Credit, 2009)

1 Credit Derivatives overall (Risk Institutional Investor Survey, 2009)

1 High Yield Research (Credit, 2009)

2 Credit House overall (Credit, 2009)

2 High Grade Research (Credit, 2009)

2 All-America Fixed Income Research survey ( Institutional Investor, 2009)


we all know bankers love to tweak awards and stuff like that by throwing asterisks in and what not, so i went to TR to see what was in the report. Below are the highlights. For the sake of discussion, I've only really included the top few in each category:

Thomson Reuters Debt Market Rankings:

Global Debt, Equity & Equity-related: 1) JPM 2) Barclays 3) BAML

Global Debt, Equity & Equity-related - inputed fees 1) JPM 2) BAML 3) Citi

Leading underwriters for Q409 Scorecard (listing for JPM vs. BAML what they got #1 in and for how many conseq quarters: JPM - Global Debt, Equity & Equity-related (8) Global Debt incl. MBS, ABS & US Tax Munis (5) Global High Yield Corporate Debt (2) US Investment Grade Corp Debt (1) US High Yield Corp Debt (2)

BAML - US Debt Equity & Equity-related (2) US Debt incl. MBS, ABS & Tax Munis (2) US Long-term debt incl MBS, ABS & Tax Munis (2) US MBS (1) International securitizations (2)

Global Investment Grade Corp Debt: 1) JPM 2) Barclays 3) Deutsche 4) BAML

Global Debt rankings, a decade in review: JPM - in past decade, #1 5 times and listed as top BAML - in past decade, #1 4 times, 3 of which were 2000,2001,2002

But because we're talking about lev fin, we should focus on high yield:

Global High Yield Debt:

1 JPM - past 2 years

2 BAML - past 2 years

3 Deutsche Bank (8th in 2008)

Global High Yield Debt - US Dollar Denominated:

1 JPM - past 2 years

2 BAML - past 2 years

3 Deutsche (8th in 2008)


Look I know you have tons of pride for your bank. The last time you guys were ranked the best in high yield was a few years ago, and if we've learned anything, it's that banking has fundamentally changed over the last few years. The ONLY way you could argue that BAML lev fin > JPM lev fin is if you tried to include/exclude things like securitizations and exclude high-yield debt. Even then, according to Reuters and Leveraged Finance News - two preeminent sources, BAML is NOT the best. Even if you look at the debt composition of you guys, the majority of what you issue is corp debt, and that's the only reason in 2007 you were considered better in the debt space.

STOP self-promoting. It gets old.

 

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