An ugly power play has unsettled the discreet and usually gentlemanly world of investment banking. Using their new financial strength, a number of Arab banks have threatened to pull their money out of major international bond issues unless the managers barred some U.S. and European banking houses from participating. The Arab move was aimed at houses that were founded by Jews, and in some instances—but not all—are run by Jews and have dealings with Israel. In at least three instances, the underwriting managers caved in, and the excluded houses were barred from putting up their capital, collecting commissions and selling bonds.
Two of Britain's most prestigious investment banking houses, N.M. Rothschild & Sons and S.G. Warburg & Co., were barred from participating in a $20 million bond issue for Marubeni, a Japanese trading company. In a startling admission, officials of the lead bank in the deal, London's Kleinwort, Benson, Ltd., admitted that they had acceded to pressure from two other participants in the underwriting, the Libyan Arab Foreign Bank and the Kuwait Foreign Trading, Contracting and Investment Co. If Kleinwort had not given in, said its chief, Sir Cyril Kleinwort, the Arabs would have invested their money elsewhere. But other London bankers noted skeptically that Kleinwort, Benson was all too happy to exclude its competitors, Rothschild and Warburg, which are bigger and better established than Kleinwort in the Eurobond market.
Earlier this month, Lazard Frères & Co., a Paris banking house associated with Lazard of Manhattan and of London, was excluded from any role in floating a $25 million bond issue for Air France. One of the participants, Intra Investment Co., which gets its money from Kuwait, Qatar and Lebanon, insisted that Lazard be shut out. Intra officials put pressure on the two lead banks in the deal, Credit Lyonnais and Banque Nationale de Paris, both of which are government owned. Lazard was also excluded from a $25 million issue for another client, the state-owned utility, Compagnie Nationale du Rhone.
Lazard's officers were so upset that they took a rare step in the genteel world of investment banking; they complained to the French Finance Ministry. It seemed most unsettling that the Arabs had forced French banks to exclude French businessmen from financings for French government companies. But Premier Jacques Chirac refused to get involved, declaring the exclusion to be "a matter of relations among banks and between banks and their clients."
Sign of Resistance. Elsewhere, however, there were growing signs of resistance to the Arab muscle. In Manhattan, Merrill Lynch, Pierce, Fenner & Smith refused to capitulate to demands by the Kuwait International Investment Co. to drop the U.S. branch of Lazard Frères as a participant in two lending syndicates that will raise $50 million for the Mexican government and $25 million for Volvo. Merrill Lynch Chairman Donald Regan was not about to exclude Lazard or slight its chairman, 76-year-old Andre Meyer. The Kuwaitis then dropped out of the deals. Echoing the typical sentiments among investment bankers, Paul Judy of Chicago's Becker and Warburg-Paribas beamed: "I'm glad that somebody stood up to them."