EuroWeek magazine reports that Greece has hired Lazard in an advisory capacity: it is not a stretch to assume that this is in connection with a potential, and some say inevitable, bankruptcy... unless the country is really serious about procuring a stalking horse distressed M&A bidder for Santorini. We also note that DebtWire has yet to report on this development: looks like the FT is really starting to slip. It would not be a stretch to see why Greece and Lazard are on good terms: after Greece basically put all banks on the kleptocrata non grata list, the pseudo-French company seems like a legitimated candidate (not to mention that France will fail first should Greece default). Additionally, in March 2009 the firm advised the Hellenic Government on the sale of various Olympic Airlines assets to Marfin. Lazard is also no stranger to sovereign reorg, having worked with Nicaragua, Ecuador and Cote d'Ivoire on various restructuring assignments. However, while those deals were a walk in the park, Jim Millstein and and new (and critical) addition Felix Rohatyn will find Greece, where 80% of the population does not want a bailout and in fact is rooting for a default, a much tougher nut to crack.
Then again, the recent retention of Rohatyn just when Greece was imploding may have been clutch for Lazard. As EuroWeek reports:
If
Lazard does have the big mandate, then the bank’s rehiring of advisory
veteran Felix Rohatyn in February is a masterstroke. Rohatyn was the
man behind the restructuring of New York’s public debt in the 1970s and
since returning to Lazard he has been a vocal advocate of creating a
regional IMF to deal with Europe’s sovereign debt problems. The recruitment of Rohatyn is the most obvious
example of banks ramping up their expertise and coverage of national
governments, which have become big users of investment banks since the
crisis first started in 2007.
The biggest loser if the Lazard news is confirmed (incidentally the firm has not commented either way yet), is Credit Suissde:
Many government mandates involve dozens of bankers working across a diverse range of products — "a complicated matrix of country, capital markets and advisory and the make-up of the team changes, according to one banker at a leading US bank — and they say that governments are among the toughest clients to manage, because they operate across different departments with often conflicting goals. But they have become crucial to banks since the crisis, and the transfer of risk from the private to the public sector last year means they will only become more important.
Credit Suisse is one bank to set up a formal network focused on government work across its investment bank, launching a global government segment (GSS) last year to "promote a bank-wide focus on government clients across products and geographies". Paul Tregidgo, a vice chairman of the bank’s DCM operations, who co-ordinates the group has the job within GSS to pull together expertise from across the bank when required and as a 25 year veteran of the firm he is ideally placed to locate and deploy that expertise. The emphasis of the effort, as with those of its rivals, is on flexibility, allowing banks to draft in the most relevant banker for any given project or country.
Credit Suisse for instance has assembled a formidable team that advises the UK Treasury, led by James Leigh-Pemberton, that includes Sebastian Grigg, the firm’s head of UK investment banking, Euan Ferguson, co-head of European FIG, and Chris Williams, whom it hired from Citigroup in 2008. Williams, who worked with Grigg at Goldman Sachs, is regarded as one of the ‘turn-to’ bankers for the UK Treasury. Other teams are equally stocked with heavyweights of banking and capital markets. Deutsche Bank’s Treasury team comprises Ivor Dunbar, head of global capital markets, Anshu Jain, who runs trading, and Tadhg Flood, European head of the firm’s banking business who was named on the World Economic Forum’s 2010 list of young global leaders.
Another big loser from the upcoming avalanche of sovereign defaults, it stands without mention, is Goldman Sachs:
One bank that has not enjoyed its usual flurry of state-sponsored mandates is Goldman Sachs, formerly a stalwart of government advisory work. Despite its strong links to governments across the world, it has played a minor role in the banking bail-outs. The firm may have made the decision that fees are more important but its low profile has benefited rivals.,
"Goldman used to be the turn-to adviser on big, high profile mandates in the UK and elsewhere. It’s not now. Credit Suisse and others have stolen its thunder," said one banker at a rival US firm.
Goldman’s travails arising from the Securities and Exchange Commission’s fraud charges will not help its cause with governments, irrespective of whether it has done anything illegal. As governments wrestle with spiralling deficits and the risk of contagion, while trying to appease taxpayers, appointing Goldman could be seen as showing a lack of judgement. Chief executives might still, as the mantra goes, appoint Goldman because they know it is the best but government’s may have a different view.
If Goldman misses out on the current wave of government mandates, its investment banking team may find itself struggling for relevance while others sacrifice high fees in favour of building their businesses.
We won't cry for Goldman - after all we are convinced that its prop desk has already reaped mad profits from its directional bets on Greek spreads, while its flow and Corr trading desk has likely traded tens of billions in Greek CDS with Paulson and all these other funds who attended the Goldman organized Greece "reconnaisance' mission. Plus, due to conflicts of interest (yes, when too glaringly obvious, even Goldman would acknowledge them), should the firm get caught up in advising various European nations, it would be prevented from trading respective cash and CDS product, expect on an unsolicited basis... Which as we all know kills sales people and trader margins... Which hurts almost as much as when they lose their credibility when pitching Timberwold, GSAMP and Hudson CDOs to clients only to see the price plunge from 95 to 15 in a matter of weeks.
Yet the take home here is that Greece has finally acknowledged that a Chapter [11|7] may be inevitable. Just as AIG stock plunged about 25% when David Faber broke that the firm had hired Weil Gotschal for bankruptcy work in March 2009 (and which associated advisory presentation by Morgan Stanley) we are still waiting for as per our FOIA with the FRBNY, we anticipate that this news will make an the need for an ironclad IMF agreement emerging over the next 24 hours to unavoidable, absent Greek bonds hitting 30on Monday. Lastly, but not least, based on empirical data, Greece would make a truly terrific recurring client.
