Need to raise some M&A finance? Give Citigroup a call.
As other banks decline to dance with their clients, Citigroup, one of the worst hit by the credit crunch, is still doing the rhumba.
Since September, the US bank has lent the most money of all its rivals for mergers and acquisitions, taking a 9.2 per cent market share, according to Dealogic. That compares with Goldman Sachs with a 6.9 per cent share and JPMorgan with 5 per cent.
Citigroup is one of several banks involved in the $55bn syndicated loan package for BHP Billiton’s bid for Rio Tinto; Vale’s $50bn package for its putative takeover of Xstrata, and a series of other smaller financings.
Bankers say that the facility for BHP’s loan is being priced at about 55-60 basis points above Libor – that is a lot lower than what other banks privately say they are willing to take at the moment, especially given the deterioration of investment grade credits during the past 10 days. Lending so freely, when credit conditions seem to be worsening again, looks pretty aggressive.
One reason Citi seems keen to lend is that its Tier 1 ratio is back up to more than 8 per cent after a round of capital raising.
But probably what is going on here is that Citi is taking a medium-term business view. By offering loans, it is hoping to be at the front of the queue for future mandates when the market recovers. Dropping a client during tough times is not a way to build goodwill.
After all, after taking account of risk costs, corporate lending is loss- making – money is made from ancillary products such as equity capital markets. By sticking its neck out, Citi must be more confident than its rivals that it will be able to sell enough of these products.
If it can’t, there is no economic justification for doing these loans and shareholders will have risked their balance sheet unnecessarily.