LAST OCTOBER, a group of 26 European investment firms signed a paper calling for improved market standards in the sterling and euro credit markets. One of their main complaints was that secondary market liquidity was generally poor for corporate credit paper and that “the willingness and ability among lead managers to provide an active market in the instruments they underwrite varies significantly”.
The signatories to the paper also noted that although banks consider that volume league tables of primary issues are important tools when competing for new-issue business, they do not provide much useful data. Potential issuers “can achieve much better execution, and lower funding costs, by focusing on which lead manager provides the best secondary market liquidity in the issues they bring to market”.
The new-issue volume league tables produced by banks have to be taken with a pinch of salt. The practice of buying league table credit has long been discussed and it does not follow that a bank that has done a lot of execution is necessarily exceptionally good at it. And it is easy for banks to manipulate objective data to suit their own ends.
The trouble is, these sorts of league tables are easy to come by.