European Bank for Reconstruction and Development Marketing Strategy for the Debut Bond Offering

European Bank for Reconstruction and Development:

The first challenge is related to pricing. Pricing reflected market yields and referred to the "benchmark" rate. The market yields were compounded through the national Treasury yields, but there was no such Treasury yield for the ECU, since this was not an actual currency for the EU. Issues such as lack of liquidity for the European market and others meant that the European Bank would have difficulties in putting together a reasonable pricing strategy.

The market was also complicated at the time of the issuing. The ECU Eurobond market was in a process of being reshaped, and it had significant integration difficulties, with different volatile markets affecting the overall perspective of things and making marketing entirely more difficult in this environment.

Another marketing challenge is that the European Bank is a new bank, so the market remains skeptical until it has proven that it can be a functional financial entity. For the moment, all that the European Bank can market is a number of idealistic thoughts and projects, mainly focused on bringing money to Central and Eastern Europe. Investors want to see some sort of profit at the end of the road and this profit remains unclear for this investment.

Finally, in 1991, likely there wasn't the skepticism we see today towards the EU, but still investors had difficulties in investing in a currency that only existed virtually, such as the Euro. As a consequence, a challenge for the marketing team was that it had to overcome this and promote the issue as a successful currency issue.

2) The European Bank should use a two-step strategy. In the first phase, it should issue in ECU and in the second phase, it should issue in U.S. dollars. It could use either Paribas or Deutsche Bank for the ECU emission and Meryl Lynch, as the largest underwriter in the world, for the USD launch. The advantages of this approach would be that the European Bank would raise more money, in more different markets, spreading its risk. The con is that, potentially, both issuances might not lead to the expected results.

3) Deutsche Bank:

Deutsche Bank is a financial powerhouse among the European banks, with all the advantages that derive from this status, including capacity to lead and the respect of all entities on the market. Deutsche Bank has also worked with supranational organizations for 25 years, having a proven commitment to the international capital markets.

As the first con, Deutsche favored too much and was too subjective in the direction of a Eurobond issue in U.S. dollars, primarily because it had a good record in that market. A second potential con was that, because of its stature and importance, Deutsche might have tried to entirely take over the entire process of bond issuance and impose its own conditions.

Merril Lynch:

Meryl Lynch had ranked as the largest underwriter in the world for the past three years and it provided a long-term commitment for the inaugural borrowing of the European Bank. Meryl Lynch also proposed a global bond, with all benefits arising from this. Finally, it also aimed at an innovative public issuance.

The con is that the type of strategy that Meryl Lynch proposed lacks the anonymity of normal Eurobonds, which could turn some of the investors away from the bid. Meryl Lynch also had more limited experience in the ECU Eurobond market.