John Lefevre, the former banker behind the GSElevator Twitter account, has written a book and it has some pretty fascinating tidbits about the business of selling bonds. Readers of my work (the three of you out there) will know that this is a favourite topic of mine and Lefevre’s experience as a fairly senior syndicate guy means he has some some authority here. Even Matt Levine, who isn’t generally a GSElevator fan, thinks so.

Here’s what I found most interesting after reading a preview.

For a start there’s all the usual horse-trading of favours:

“Side deals and favor trading are still a huge part of the allocation process. It’s amazing the number of times I get invited out by a hedge fund in the days leading up to the pricing of a hot deal. Sure, a nice bottle of wine over lunch will probably get him a few extra million bonds the next day. … However, much of our allocation pressure also comes from within. If prime brokerage is wooing some hedge fund and they want to impress them, they call us and say, “Take care of my guy on this deal, and then tell me before you release allocations.” Their intention is to front-run the news by calling the hedge fund and taking credit for hooking them up with a generous allocation.”

But then there is also this (probably illegal?) fee fixing agreement:

“There was actually an off-the-record meeting held at a hotel in Hong Kong several years ago, attended by most of the senior Asian syndicate managers from the big Wall Street firms, to try to stem the tide of banks undercutting one another on underwriting fees. I know because I was there. We covered the full spectrum, from high-yield corporates to sovereign frequent issuers—namely Indonesia, Korea, and the Philippines, where underwriting fees had dropped to as low as 0.02%. Some guys flew in from Singapore just to attend the meeting, and then following a handshake agreement, we all went out drinking. … The secret syndicate meeting was long overdue. We needed to find a better way—there wasn’t enough lucrative business to go around to sustain or subsidize doing deals for free, especially once we started cutting high-yield fees down under 1%. During this meeting, all the bankers agreed to set fees at minimum levels, and we all promised to not be the ones to break the agreement. Of course, a truce like that was never going to last long.”

(I did ask some former bankers about this alleged agreement and found one who said it happened.)

The book is out on July 14.

Here’s the Most Interesting Thing in GSElevator’s New Book