BREAKINGVIEWS-Bankers may not welcome UK rainmaker’s legal win

By Aimee Donnellan

LONDON, March 14 (Reuters Breakingviews) - Investment bankers are “like teenage lovers”, who “pour out their efforts, almost without limit and in response to the slightest encouragement”, to obtain “the nirvana of a mandate”. So said British judge Simon Gleeson, as part of Wednesday’s ruling to award veteran dealmaker Ian Hannam $2 million from a former client over missing fees. Although the victory may seem like a win for investment bankers in general, his peers may not be punching the air.

Hannam’s case against Canadian mining firm Barrick Gold ABX.TO concerns 2018’s $18 billion merger with London-listed Randgold Resources. The banker, for long a big name in equity capital markets at JPMorgan JPM.N, claimed his boutique advisory firm Hannam & Partners came up with the code name “British Rail” for the deal. He said he provided advice, slide decks and modelling and was ultimately “pushed out” at the last minute when the mandate for the deal was handed to Wall Street rainmaker and rival Michael Klein.

On the face of, investment bankers should cheer the court’s decision to make Barrick Gold cough up, even if it wasn’t the amount Hannam sought. After all, he was awarded fees for work he had done. That will strike a chord with fellow dealmakers. While the practice of asking clients to sign so-called “letters of engagement” offers some protection, bankers routinely bust a gut to obtain M&A mandates by providing insights that don’t always result in paydays.

Still, going legal cuts across some of the advisory sector’s unspoken rules. The main currency for rainmakers is access. If an investment banker is in the room with a CEO who ultimately chooses a competitor, he or she might be rewarded by winning the next mandate. The system therefore benefits both sides: CEOs get to hear a wide range of advice from multiple advisers before narrowing their choice down, and investment bankers have the freedom to pitch many deals because those not on a mandate are unconstrained by conflicts of interest.

The risk is Hannam’s case spooks CEOs into being more selective in who they seek counsel from. If a company boss fears informal advice may turn into a lawsuit, it may prompt them to be more formal in their agreements with bankers, locking them into mandates early. Given how many deals fail to go from planning to reality, that might tie the hands of rainmakers when trying to secure other business.

Speaking after the ruling, Hannam said that the mantra “My word is my bond” remained at the heart of client relationships. That will still be the case. But his rivals will hope that the saga doesn’t result in less work.

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CONTEXT NEWS

Canadian mining group Barrick Gold has been ordered to pay $2 million plus legal costs to compensate veteran dealmaker Ian Hannam over work he did to help bring about an $18 billion merger in 2018.

Hannam & Partners claimed Hannam had been “pushed out” of the deal at the last minute. The boutique advisory firm asked the court for $18 million, claiming Hannam's services were critical to bringing about the deal between Barrick and London-listed Randgold Resources.

Barrick Gold denied the claims.