Ability to turn the tables puts banks in a league of their own
League tables feature prominently in presentations drafted by investment banks for their corporate clients, as well as in the financial press. They provide readers with an indication of their market shares and rankings relative to those of other houses, and for a given region, country, industry sector, product - or a combination of these.
In equity capital markets (ECM) departments, cutting league tables is probably the first skill learned by junior analysts. It helps paint their firm in a good light in pitch books to win mandates. Any investment banker worth his salt can conjure a set of league tables that show his employer leading the ranks.
For some houses, if a particular team or department can show it has cornered the market and deserves the riches associated with its rainmaker status, this can be an ego trip or a source of pride. Importantly, it can also assist in internal bonus discussions. For others, it's more of a necessity. Many prospective issuers look closely at league tables when deciding whom to hire for a deal.The tables can demonstrate that a bank has experience working in a given market; for example, managing initial public offerings for Chinese technology firms. The ranking reassures clients. If a bank can show that, for example, nine other firms hired it to lead a listing in a particular market, and that it sits among the top three banks in terms of volume of shares sold to investors, then the firm must have something going for it.
But there are many ways to come up with a top ranking. And unless statistics are computed in a genuinely identical fashion for all players, there's the risk of not comparing apple with apple. In the world of IPOs, every bank, it seems, always ranks as number one.
First is the period over which the tables are computed. It's so easy to select dates to include a big transaction led by one's firm, or to exclude earlier, sizeable deals by others. Those league tables that do not reflect calendar years, quarters or semesters should perhaps trigger alarm bells.
Second, it's also child's play to include or exclude certain types of transactions, countries or sectors. For example, if a bank has been missing out on rights issues mandates, or on block trades by Chinese companies, these will simply be excluded.
So one could end up with something like 'fully marketed equity capital markets offerings in Asia ex-Japan'; which sounds fair enough. But by reading the fine print one might notice 'excluding Chinese issuers and rights issues', which is looking at the marketplace through a much narrower prism.
For those houses that are less active in senior roles, combining several syndicate positions can create the illusion that one has been busy leading deals - when one has not. How about a 'lead, joint lead and co-lead manager' league table? It sounds rather grand to the uninitiated, but underscores the lack of ability of that particular firm to secure bookrunner roles.
Then there are the tricky, subtle issues of how league tables are calculated by data firms such as Dealogic and Thomson Reuters. For example, some table compilers will only count follow-on or block trades that are underwritten (that is, the bank commits to cover the transaction, no matter if investors buy the deal or not). Others may credit non-underwritten deals. It's a call that can have a massive impact on the rankings.
Or, consider the ambiguity of the country of origin for an issuer. A firm may be based operationally in the mainland, have its headquarters in Hong Kong and be incorporated in the Cayman Islands. Should a bank that led a deal for such a firm have the transaction recorded in all-important China league tables? Some data firms would include the deal; others would not. It would take someone with inside knowledge to know the difference.
That might not be fair, but such is the nebulous, highly abstract nature of league table rankings.
Philippe Espinasse was an investment banker in the US, Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong. He is the author of IPO: A Global Guide, published by HKU Press