UBS has jumped to second place for corporate broking roles for UK blue-chip firms following its takeover of Credit Suisse, although bankers said it faces a fight to keep new clients as rivals smell blood and try to win them.
UBS is confident it can see off rivals with its enlarged and stronger business. It said it has added 15–20 people from Credit Suisse in UK investment banking, including seven managing directors, three of whom are in corporate broking. The takeover has also bolstered its equities and research platforms.
“The UK is and always has been a very important geography for UBS," said David James, co-head of UK investment banking at UBS.
In terms of corporate broking, James said: “It’s for us to prove our worth and I’m confident we will do that.
“Given the size of the business, the number and quality of the people, the equities and research platform, it leaves us in good stead for growth,” he told IFR.
Rivals inevitably see the change as an opportunity and said it could herald a period of flux for UK corporate broking roles, especially with Deutsche Bank about to take over Numis.
“Everyone will have looked up and down their list to see who they can shake loose,” one senior banker at a rival firm said of the Credit Suisse and Numis client lists.
Being corporate broker to a FTSE 100 firm can be lucrative, as it often leads to work advising on M&A, fundraising, asset sales, share buybacks and more. Banks often keep a role for a decade or more.
That makes it a highly competitive landscape, especially since US banks became serious players from around 2005. Big US banks occupy five of the top seven spots by number of FTSE 100 roles, with UBS and Barclays taking the other two.
UBS has remained strong in UK corporate broking despite a long and steady slide down global investment banking rankings. That UK strength stems from its ownership of Warburg since 1998, which instilled a culture that suited the corporate broking model, bankers said. As US banks picked up more clients, UBS was also viewed as a strong European alternative.
UBS said it is corporate broker to 30 FTSE 100 firms following the Credit Suisse takeover, which ranks it behind only JP Morgan.
The roles are not always publicly disclosed, and Adviser Rankings, which tracks the mandates, estimated UBS had 28 roles as of October 3, based on 21 for UBS, eight for Credit Suisse, with one of the roles duplicated. It said that put UBS level with Morgan Stanley. JP Morgan had an estimated 32 blue-chip corporate broking roles while Bank of America was in fourth with 27.
UBS's roster also includes many of the biggest firms. Its clients include oil major BP, dating back to a relationship with Warburg in the 1980s, and also big guns like Rio Tinto, British American Tobacco, Lloyds Banking Group and Vodafone.
Still, rival bankers are hoping its bump from Credit Suisse is short-lived and there could be changes in mandates – maybe not immediately, but over the next year or two. They expect some Credit Suisse clients to hold a beauty parade in which UBS will have to compete.
Bankers said they also have their eyes on Numis as Deutsche Bank prepares to complete its takeover on October 13. Numis was corporate broker to 11 FTSE 100 firms at the end of August, ranking eighth, according to Adviser Rankings.
Banks are always on watch for new broking roles, and one senior banker said the circling by rivals intensified months ago. Banks look to step in if companies have a period review of their line up, perhaps every five years, or when they see a chance to step in, such as Credit Suisse's loss of top bankers and problems in the past two years.
The outside bank might “shadow broker” the potential client and offer advice. “That (shadow broking) is a common technique and you just turn up the temperature on it,” one banker said.
A third banker said shadowing a firm can be time consuming, but because deal activity is slow and many UK companies are frustrated by what they see as undervalued share prices, companies are likely to be more receptive to outside ideas.
On the flip side, corporate banking mandates are sticky. Much depends on personal relationships between senior bankers and a chairman, CEO or finance chief, and that will be a factor for Credit Suisse and Numis clients.
“The key question for a lot of clients will be how long will the people stay there, and how will it work in the new organisation,” the second banker said.
John Hannaford, Matt Hall and James Green have joined UBS from Credit Suisse as managing directors in UK corporate broking.
Some clients have already taken action. Housebuilder Barratt Developments, for example, appointed UBS as joint broker alongside Credit Suisse early this year and in July added Barclays. Last month it said it had just UBS and Barclays.
In the history
Corporate broking is a uniquely British practice, but now with a big US flavour. Corporate brokers provide strategic advice to clients and feedback from investors, and often acts as a sounding board. The bank then usually leads or is involved in any equity or bond issuance or M&A work. FTSE 100 companies typically have two joint brokers and some have three.
Because roles change infrequently, it can take years for banks to add clients and move up the rankings. There can also be conflicts of interests if it advises another firm in the sector. The tally for the FTSE 100 also swings every quarter when firms are promoted or relegated from the index, or it can change due to M&A activity.
Bankers said the corporate broking model still works well in the UK and has evolved significantly from the old days, tapping into the full equity and research platform and the range of debt, FX, hedging and other products. There is increasing focus now on data and analysis and ESG issues, where an external view can help.
JP Morgan has been the leading adviser to FTSE 100 firms since its joint venture with Cazenove in early 2005, followed by the full takeover in 2010. Cazenove’s long relationships with bosses of big UK firms was the major attraction for JP Morgan in the deal. In 2005, JP Morgan Cazenove was broker to 41 FTSE 100 firms.
The biggest gainers since 2005 have been Morgan Stanley, which started building up its broking business in 2004, and Barclays, which ramped up from about 2009. Goldman Sachs and Citigroup have also gained, while Hoare Govett – under different owners – and Deutsche Bank have lost out.
At the end of August, there were seven banks with 15 or more FTSE 100 clients, Adviser Rankings data showed. After the top four were Citigroup and Barclays, each with 16 clients, and Goldman with 15.
Many of the banks also target mid-sized UK firms in the FTSE 250, especially the larger ones. JP Morgan was corporate broker to 60 FTSE 250 companies at the end of August, making it broker to 94 of the biggest 350 UK-listed companies. Numis ranked second with 65 FTSE 350 clients. They were followed by Barclays, Morgan Stanley, BofA, Jefferies, Peel Hunt and UBS, which all had 35 or more clients in the top 350 firms.