IR magazine UK awards 2008 interviews
Banks swept the board at this year's IR Magazine UK Awards. This may be explained by the tough market conditions they have faced, which tend to bring out the best in IR. But the hard work hasn't stopped, with many award winners involved in recent capital raisings to shore up their balance sheets.
Capital raisings are extremely complex operations - at a similar level to corporate transactions - and require IR teams to put in a huge amount of work. The demands increase as the offer period edges to a close, as institutional investors typically wait until the last moment to decide whether or not they will take up the new shares.
As many of this year's winners were banks that have had to issue new stock, such as Barclays, Royal Bank of Scotland (RBS) and HBOS, IR magazine took the opportunity to chat with IROs from these institutions and get the inside story on their capital raisings.
By coincidence, Barclays, winner of the grand prix for best overall IR, announced its long-expected capital raising on the day of the awards. It was a long day for Mark Merson, head of IR at the bank, who arrived at the event just hours after helping to announce the £4.5 bn ($8.93 bn) share placing to the market.
Due to the complex nature of a large capital raising, Barclays set up a steering committee to guide the project and keep senior members of staff informed. IR played an active role on this committee, with Merson attending meetings and then passing information on to the rest of his team. 'The steering committee made sure due diligence was properly conducted with sponsors, that we had the right information flows to the right investors, and that everything came together at the right time to achieve our overall objectives,' he explains.
In the run-up to its own £4 bn rights issue, HBOS, which picked up the trophy for best corporate governance at this year's awards, also set up a steering committee on which IR had a seat. RBS, however, took a different approach. 'We do not really do steering committees and there was not one for the rights issue,' comments Richard O'Connor, head of IR at RBS, who shared the award for best IRO with Michael Oliver from Lloyds TSB Group. Still, IR was 'closely involved in the logistics, post-announcement planning and roadshows,' O'Connor adds.
Different places, different rules
One of the complex aspects of raising capital is the different financial regulation that operates around the world. RBS and Barclays are global entities, with substantial operations in the US and Asia, while HBOS owns an Australian subsidiary, BankWest.
In these situations, it is necessary for IR departments to have a website that takes into account different jurisdictions. 'There are issues about what you can and can't do in restricted territories around the world,' says John Hope, director of IR at HBOS. 'In the rights issue section on our website, you have to click on different things depending on whether you are American or Australian.'
Due to jurisdictional matters, in some areas a rights issue cannot be offered. For example, retail shareholders of HBOS and RBS in the US couldn't take part. 'This is typical of these kinds of situations,' says Naz Sarkar, director of investor services at Computershare, the registrar that worked with RBS and HBOS during their rights issues.
Institutional versus retail
Of course, domestic shareholders are not a homogenous bunch, either. Retail shareholders tend to make up their mind about an offer early on in the rights period, while institutional investors wait until the last few days, sometimes the last few hours, before making a decision. This situation is further complicated by the role of private client stockbrokers, which represent retail holders but also wait until the last moment before deciding whether to take up the offer.
Getting the message out to retail shareholders is a time-consuming process. The job was particularly big for HBOS, with private investors holding just under 30 percent of its stock. 'We talked a lot to private client stockbrokers; that's a good way of getting to retail holders,' says Hope. 'We also have a pretty good website, where people can see what to do and how to do it.'
Institutional players usually demand face-to-face contact, which means IROs have to get out on the road; this is where a company's broker comes in handy. During its rights issue, HBOS' brokers, Morgan Stanley and Dresdner Kleinwort, which also acted as underwriters, helped organize roadshows and lined up meetings with investors.
Barclays, which brought in big institutions from Asia to anchor its offer, used its own investment banking arm, Barclays Capital, as advisers. It handled all direct contact with strategic investors, according to Merson.
As the offer period ends, the communication demands ratchet up. Institutional investors' tendency to wait until the last moment to make a decision means IROs may still be sending out information with few minutes to go. 'You really have to step up a gear in this sort of environment,' concludes Hope.
The UK awards, held under sunny skies at London's Artillery Garden in July, gave hard-pressed IROs the chance to take a breather from their hectic schedules. Banks responded particularly well to the tough market conditions that have troubled their sector since summer 2007, with Barclays, RBS, HSBC, Lloyds TSB Group and HBOS all picking up gongs.
Hope feels the tough conditions gave banking IR the chance to shine. 'It could be why banks have done so well at the awards,' he states. 'We've all had the economy and liquidity to deal with. Barclays and RBS have had their respective bids for ABN Amro, plus their capital raisings. We've had a rights issue. And then there was Northern Rock going kaput.'
O'Connor points out that the banking sector has probably been the busiest arena in terms of news-flow over the last 12 months. 'I was therefore very pleased with the award, given how tough the last 12 months have been for RBS and the banks in general,' he comments.
Hope adds that IR departments at UK banks harbor a wide range of financial experience, which has held them in good stead during the current market woes. 'We might not have seen the likes of the current market before, but we've all lived through other kinds of cycles, depending on age,' he explains. 'Richard O'Connor and I both spent a lot of time as fund managers, while Charles Wycks, HBOS' head of IR, spent a lot of time in the business.'
Barclays was the big winner of the evening, taking home the awards for best crisis management, for its handling of the US subprime mortgage crisis, and the grand prix for best overall IR. One respondent to the research that determines the awards (see How we found the winners, below) commented: 'I suppose in all the banking mess, Barclays stands out for having tried more than others to give us information. The CFO has been invaluable.'
Merson puts the success down to his department's close relationship with senior management. 'We don't work out what we are going to do, and then bring in IR to make everything look good,' he says. 'The bank is run in a way that is conducive to shareholder interests. That's the way the organization thinks, from chairman, chief executive, president and executive committee down.'
After picking up his award, Merson retired early to his hotel, as he was soon off on an international roadshow with the CEO and CFO, before helping to prepare Barclays' half-yearly report. It seems there is no rest for a banking IR professional.
Other winners on the evening included Sir Martin Sorrell of WPP, who claimed the award for best IR by a CEO. Only days later he too was back in the thick of it, going hostile in his bid to capture French advertiser Taylor Nelson Sofres.
Before and after dinner, hosted by TV personality David Mitchell, guests were entertained by a private fairground. IR professionals, service providers and members of the press set down their drinks to snatch a view of the City on the Ferris wheel, or do battle on the bumper cars.
It was good to see IR people letting their hair down, as the next 12 months look set to be more tough ones for IR and the UK market.
How we found the winners
In March and April 2008, telephone interviews were conducted with 700 portfolio managers, buy-side analysts and sell-side analysts on the quality of IR in the UK. All respondents were based in either the UK or the US.
Respondents were asked to nominate and comment on companies and individuals who had excelled during 2007 in a number of different categories, including best corporate governance, best use of the internet and best overall IR. The full results are published in IR magazine's Investor Perception Study, UK 2008/2009.
The independent research was carried out by Mary Maude Research and is part of a continuing study of global IR commissioned by IR magazine.