Banks make love, not war, with BCE (gam)
Andrew Willis
When BCE pulled the rug from under Teleglobe and blew a billion-dollar hole in the Canadian banks' balance sheets, you'd think the conglomerate would pay a price with its lenders.
The bankers certainly had all sorts of reasons to be angry, and all sorts of ways to get even. They had former BCE chairman Jean Monty's pledges to stand behind Teleglobe. They had BCE's continued influence over the affairs of the long-distance carrier.
And when it comes to a big stick, the Canadian banks have BCE over a barrel. The conglomerate will likely have a pressing need for money this summer, as it faces paying $7-billion to repurchase a 20-per-cent stake in Bell Canada that's about to be punted back to BCE, at a premium to its market value, by U.S. telecommunications company SBC.
With all this pent-up anger, and all this leverage, what are the bankers actually doing?
Well, they spent a week or two of huffing and puffing in righteous indignation around the time Mr. Monty left the stage and Teleglobe's fate was sealed. Since then, Air Canada and the private jets have been winging to BCE's Montreal head office from Toronto with a succession of investment bankers bent on making peace, not war.
Teleglobe's $1.25-billion (U.S.) hit is now ancient history. It bit the past quarter's earnings for every bank. The bankers are looking to the future, when opportunities will flow from SBC's sale of its Bell Canada shares.
The same banks that just lost money on loans to Teleglobe are now falling over themselves to lend to its parent, BCE. In exchange for this credit, they will demand starring roles in any equity offering that BCE does to pay down debt. They want to raise cash off the back of the phone-book business, a potential $2-billion (Canadian) deal that's coming soon. And they want a leading role in possible Bell Canada income trusts.
And the bankers will lend in return for mandates to sell unwanted divisions in the coming BCE yard sale, when CGI, BCE Emergis and, down the road, the conglomerate's media assets are all likely to go on the auction block.
And who can blame the investment bankers -- most get paid their bonus off bottom-line profits that are driven by the fees they bring in, not on the performance of the loan portfolio, which can be as distant as a war in Africa.
Newly named BCE chief executive officer Michael Sabia must get a laugh at the whole unseemly process. His first major decision was to hammer the banks by cutting Teleglobe loose, and those same banks are now fawning all over him. He's not the first executive to get this treatment: The Reichmann family still enjoys a warm reception from Canadian Imperial bank of Commerce, despite the havoc wrought on the bank's shareholders when their real estate empire crashed. |
