Arranging a Syndicated Loan: Do Banks Benefit From Relationship Investment?: A Study on the Nordic Market

Abstract: The Nordic syndicated loan market has substantially increased in volume and in 2006 the total volume amounted to US$ 111 billion; it is an important marketplace where banks invest capital and other resources. This paper investigates whether banks benefit, in terms of pricing and ancillary business, if they have strong lending relationships with borrowers. The paper reproduces a study on the U.S. market. Data on Nordic syndicated loan and bond issues from 1983 to 2006 are examined. The results indicate that lending banks can extract a price margin of an additional 5.59 basis points from its relationship borrower. Further, a prior loan relationship with a borrower increases the probability of a bank re-arranging a syndicated loan with 20.43 percentage points. However, acting as an arranger on a prior syndicated loan does not significantly increase the probability of arranging a future bond issue. Arranging banks on the Nordic syndicated loan market can therefore benefit from nurturing existing and developing new relationships with borrowers.