- Banks are embracing digital software to cope with a spike in transactions across the bond markets.
- As administrative tasks become automated, bankers are eyeing chances to build client relationships.
- Despite convenient software, bankers still fear that parts of investment banks will be cut loose.
- See more stories on Insider’s business page.
Investment banks’ capital-markets desks are busier than ever.
Globally, high-yield bond issuers raised $277 billion in debt throughout the first four months of 2021, up from $149 billion throughout the same period last year, according to Refinitiv. Borrowers rated investment grade, meanwhile, raised about $1.5 trillion from January through April, down from $1.8 trillion during the same period in 2020 but up from $1.4 trillion in 2019.
Incredibly, bankers have compiled these numbers from the comfort of their homes.
Amid this barrage of bond issuance are banks’ unheralded syndicate desks. A small part of the investment-banking floor, bond-syndicate desks might only have 10 staffers, but they’re the beating heart of a bond sale when a deal hits the market.
They liaise with the top investors like BlackRock or Pimco and whip sales and trading into shape to ensure there’s enough buyers for a bond deal. Syndicate also compiles a book of bond orders for those willing buyers and determines an ideal price for a deal.
It’s a rewarding, multifaceted role, but it’s one that’s staring automation directly in the face.
And while tech developments have remedied syndicate’s more menial administrative tasks, like manually entering every investor order into a spreadsheet multiple times a day, the enhancements irk some bankers who fear they could one day become unneeded.
“Allocation via the computer is coming,” said one syndicate banker who works at a bulge-bracket investment bank. “Automation makes allocations for a bond sale more uniform, but it’s scary for bankers that focus solely on execution.”
While syndicate is far from going extinct, younger, midlevel bankers at global investment banks are pairing their tech savvy with client-facing responsibilities in order to increase their value. This next generation of managing directors want the chance to cultivate client relationships in the hope they bear fruit, regardless of whether their futures are at an investment bank.
“You look to advisory roles,or debt capital markets, where it’s relationship-driven,” said a second banker who asked not to be named while discussing other opportunities. “Because it’s execution-based, syndicate has more room for automation. While it won’t disappear, that desk of seven or eight might shrink to three or four.”
How automation is helping banks do a lot more with less
As bond issuers have binged on cheap credit, syndicate bankers, like much of Wall Street, have consistently logged double-digit hours to get deals across the tape.
This sheer number of transactions would have been almost impossible to handle without widely adopted tech platforms.
For example, IssueNet, a digital platform that some 200 banks from Goldman Sachs to Credit Suisse are using, links together order books compiled by banks leading a bond sale. It’s proved a godsend for syndicate as those on the desk no longer need to manually mine each bank’s spreadsheet for duplicate orders or other human errors.
“Where it’s been helpful is in the course of allocating the bond, when there are multiple revisions to an order,” a third syndicate banker with another bulge-bracket firm said. “With IssueNet, you just update the number. It saves time by not having to converse through long email chains and phone calls and avoids miscommunication.”
A private bank, for example, managing a plethora of wealthy clients might enter a $5 million ticket for a bond deal in the morning, only to ask for a larger amount at a later point in the day while the order book builds.
It’s a tedious, time-consuming exercise for syndicate bankers who would have had to manually enter such an amendment into a spreadsheet in the past.
And with deals coming at a record clip, IssueNet has helped syndicate desks complete transactions in shorter times.
“The issuer gets certainty and a better opportunity to price a bond in a finite window,” said Chris Sztam, who leads the global-markets group for IssueNet’s owner, IHS Markit. “Being able to understand what you bought and the speed with which you bought it matters.”
That ability to quickly and precisely execute a bond sale when the markets are open allows sales, trading, and syndicate desks to dedicate more time to investors, helping them understand the transaction and deepen a client relationship.
The third banker, who acknowledges that some banks might have too many heads across syndicate and sales and trading, relishes the human interaction — particularly chatting with bond buyers about a price point, or simply chewing the fat on markets, gossip, and all the intricate details that help cultivate priceless relationships.
“No one wants to lose that ability to build a relationship. They want to get rid of the administrative stuff and focus more on having a conversation with their client,” said Nick Hall, the cohead of the fixed-income business at IHS Markit.
Investors’ FOMO: the risk of missing out on a deal
Typically investors are notified of transactions from their sales contacts at banks, and from there they decide whether they are going to play in a deal.
If they’re interested, investors will relay their requested order to banks’ sales staff, who then alert their colleagues over in syndicate.
It’s straightforward, but bankers debate whether there are too many cooks in the kitchen when a bond is sold.
Digital programs like IHS Markit’s Investor Access, or DirectBooks, enable bond buyers to place orders directly through systems that notify the bank leading the transaction. They streamline communication with banks and mitigate clutter, in much the same way that IssueNet helps a syndicate compile an order book.
With a seamless, automated procedure, however, there’s less room for flexibility.
Markets are processing multiple transactions a day and investors, being human, may unintentionally overlook a deal. And by the time they come back to it, portfolio managers may have missed the cut-off time to place an order, and that book will have closed.
“One of the risks transitioning to automated processes is the risk of missing out on the deal,” said George Bailey, a portfolio manager with Aviva Investors. “If we’re looking at multiple deals and they all shut at the same time, there may be one that we’re minutes late into.”
Some bankers also bemoan the process to get around the efficiency of technology. One syndicate head said an investor order that comes outside of automated procedures could have less chance of getting in the deal, as bankers then have to devote time to writing a formal request determining why a certain investor should indeed be on the deal.
While the automated procedure follows a strict timeline and restricts loopholes, it can be a burden on client-facing bankers who want to ensure their relationships remain intact.
‘There shouldn’t be someone on the trading floor … pressuring for more bonds’
If a deal is too popular, inevitably, some investors will not get what they wanted, while others could miss out entirely.
This is the human element of a transaction where a syndicate desk can be coerced by sales forces or investors into giving them what they want at the expense of other bond buyers.
To avoid this, market players agree the final order book for a bond should be determined by the syndicate desk.
“There shouldn’t be someone on the trading floor or an investor pressuring for more bonds. It should just be advice from the syndicate desk,” the second banker said.
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