Two recent skirmishes between Chase Manhattan Corp. and Deutsche Bank AG for a pair of highly sought-after deals are highlighting the fierce competition among banks for corporate clients.
At stake were deals worth a combined $1.2 billion that had each bank touting its comparative strengths to woo clients formerly claimed by the other.
The first clash came on a $1.14 billion loan package for Stone Container Corp., a St. Louis packaging conglomerate. Stone Container, a subsidiary of Stone-Smurfit, is seeking to refinance a $560 million credit line and add a $575 million term loan because its current debt agreements will soon expire.
The current credit line was restructured in September 1998 as part of a $2 billion merger between Jefferson Smurfit Corp. and Stone Container Corp. Deutsche Bank predecessor Bankers Trust Corp. led the deal, and Chase was co-arranger. Though successful, the deal was, for a time, in doubt because some creditors of cash-strapped Stone Container did not like the new terms.
Conditions have changed this time around. Chase, which boasts a dominant market position as the No. 1 U.S. syndicated lender, grabbed the lead spot by touting its syndication expertise and making an aggressive push to get Stone into the loan market now. "Deutsche is not happy about it," said a banker familiar with the deal.
Kevin F. Sullivan, a managing director at Deutsche Bank, acknowledged that Stone Container turned aside its historical lender to give Chase leadership of the deal. "I guess they perceived that they [Chase] would do something to get the deal done."
Rich Mara, a Smurfit-Stone executive, declined to comment on the change, saying the company is declining all telephone interviews because past dealings with the press have created "ugly situations around here." Chase bankers declined to comment. But Deutsche Bank has already countered, albeit with a smaller victory, using its heft in capital markets, especially stock research and underwriting.
Deutsche has been brought in as a co-arranger of a $100 million loan to Houston-based U.S. Concrete Inc. The deal is seen as a coup for Deutsche Bank because, even though Chase is co-leading the deal, U.S. Concrete had been a Chase customer - and chose Chase as sole arranger of a $75 million loan that closed in May 1999.
Michael Harlan Sr., U.S. Concrete's chief financial officer, did not return calls seeking comment but reportedly has told bankers that he wanted Deutsche Bank's stock expertise. Deutsche Bank's Mr. Sullivan acknowledged that the bank was brought in for its equity research expertise. "They called us," he said. "It's not like we used an ax to get into this deal."
A banker in the U.S. Concrete syndicate said it is not unusual for banks to pitch services other than loans to win a client's loan business. "If your equity coverage will get you into the loan business, you'll do it every time."
Ronald I. Mandle, an analyst at Sanford C. Bernstein & Co. in New York, said that though Chase might be losing some companies such as U.S. Concrete to banks with better equity coverage, the loss would be offset by Chase's strength in investment-grade bond underwriting and trading as well as syndicated lending. "They will lose some business from time to time," Mr. Mandle said. "But they're so strong in other areas, if you take the big picture, they continue to dominate lending. It's hard to say, even a mistake to say, they've been majorly inhibited."