Smartening their act
Corporate access teams across Europe have been slashed as banks look to cut costs wherever they can. Some have seen head-count reductions of 50 percent or more. As a result, it seems likely European issuers will experience a drop in service.
‘In some respects it’s almost a complete exit out of the area, which for me is dismaying,’ says the head of corporate access at one US bank. ‘I think it’s bad for the industry – and it’s bad for European corporates.’
Corporate access teams appeared in continental Europe several years ago, offering issuers free IR support. They were modeled on UK-style corporate broking teams and supported themselves through commissions from the buy side. Corporate access services include shareholder identification and targeting, organizing roadshows, gathering investor feedback and the provision of a day-to-day point of contact for market insight.
With numbers down at most institutions, however, teams have had to change the way they operate. Instead of putting in face time with clients to build trust and pitch new ideas, brokers are stuck in the office manning the phones and dealing with roadshows that have already been organized.
‘We’ve been adversely affected by recent head-count cuts,’ says the banker. ‘There are now fewer people covering more companies than I would ideally like. It’s a shame because companies were getting used to the ‘gold standard’ service UK companies typically experience from their brokers. In time, I think corporates will see an impact on the service they get.’
Laura Howard, head of the corporate access practice at VMA Group, a UK-based IR recruitment company, agrees the golden period of corporate access for continental firms may be over. ‘In these difficult times we have witnessed the investment banks significantly reduce their corporate access offering,’ she says. ‘This should indicate that the level of service given to European corporates cannot possibly be on the same level as it was two years ago.’
All the big banks have been affected, some more so than others. Citi saw the biggest cutbacks and now has just one person working full time servicing issuers in its corporate access department. Morgan Stanley, one of the pioneers of the corporate access model, has also seen numbers fall dramatically. Teams that ranged from six to 12 staff a couple of years ago now stand between one and five, and this could decrease further.
IR magazine questioned banks and issuers across Europe and found some anecdotal evidence of a drop-off in service. One financial institution has ramped up its email output, sending out several hundred morning briefings each day to European clients. Many corporate access teams used to provide this kind of service. But the bank claims the response to its initiative has been ‘phenomenal’, suggesting there is a lack of information flowing to issuers.
In addition, some smaller conferences are falling by the wayside. Oliver Schmidt, head of IR at German insurer Allianz, notes that certain banks have stopped organizing specialist events that take place in more remote parts of the world. ‘I do not think this is due to less demand from investors – in times like this there is usually more demand,’ he says. ‘And costs are fairly limited. The biggest effort goes into the organization but there is no longer the capacity to organize some of these events.’
Companies also complain about the loss of established contacts in the corporate access industry, a result of the high staff turnover affecting the sell side in general. It all comes at an awkward time for IROs as they gear up to take management on the road following the announcement of full-year results.
Most companies canvassed by IR magazine, however, report business as usual with their brokers, although many have heard of the cutbacks at corporate access teams and expect things to change for the worse.
‘We continue to have strong interest from investors,’ comments Jay Bachmann, head of IR at French company Lafarge. ‘For example, we did a roadshow in the US in December to multiple ‘second tier’ cities and had good interest. What’s more, we still receive multiple requests from brokers to have their clients received at Lafarge for meetings. They might no longer travel business class, but they certainly continue to travel.’
UK-listed companies are likely to escape most of the squeeze, as they traditionally maintain a corporate broker that acts as their eyes and ears in the market and provides a bundled suite of investor relations tools.
But even UK corporates may see some loss of contact as staff numbers at banks are scaled back across the board. Furthermore, much of the work involved in corporate broking, like corporate access, is provided free or in a bundled package and doesn’t directly affect the bottom line. These kinds of services are usually hit when cost-cutting occurs.
With the big banks in retreat, smaller players are eyeing the corporate access market with interest. Some smaller Europe-based banks already have a presence in the industry and report increased market share. One independent firm tells IR magazine that expansion is an option being considered.
Other broker-dealer types are considering moving into corporate access, as they already have institutional clients and see an extra revenue stream in connecting them with issuers. Independent research houses have similar plans for the same reason. It’s an attractive area to move into as demand for corporate access at this time is particularly high. Given the difficult markets, members of the buy side are as keen as ever to meet with management. Issuers also view communication as a priority.
‘Buy-side demand for access to corporate management is at unprecedented levels but with recent cutbacks in this area it is harder for some sell-side firms to provide a dedicated service,’ states Danielle Poulain, head of corporate relations at Execution, an independent agency broker.
The shake-up in the corporate access industry could ultimately prove beneficial. The one-stop-shop model favored by US banks did damage to independent IR consultancies that provide a more personalized service. As behemoths like Citi scale back their operations, it leaves the door open for smaller houses to take market share.
Whether or not overall levels of service are sustained or drop remains to be seen. Most companies expect less contact from corporate access as banks continue to scale back operations, and there is some evidence of this beginning to occur, but for the moment issuers generally report good interest from brokers. What’s clear is that demand for corporate access remains sky-high.
The bigger banks point out that they may be down, but they are not out. The key message from one banker is that corporate access teams are still here to help, they just don’t have the resources to shout as loudly as they used to. ‘If you need some help planning your IR program, just ask,’ he suggests.