Royal Bank of Canada's investment arm in the United States was part of the original syndicate of banks due to bring Alibaba Group Holding Ltd.'s gargantuan $25-billion (U.S.) initial public offering to market. But it stepped away from the deal less than two weeks beforehand, prompted by careless chatter on a webinar by an RBC executive.
In a statement released Tuesday, RBC said it pulled out of its co-underwriting role in Alibaba's Sept. 19 market debut because an "employee unrelated to the Alibaba IPO process inadvertently made a comment about the transaction on an industry webinar during the period leading up to the offering." John Taft, head of RBC Wealth Management in the U.S., mentioned Alibaba during a panel discussion held by The Institute for the Fiduciary Standard, a Virginia think tank.
In the discussion, Mr. Taft articulated his opposition to a proposal that brokers should be subject to the same fiduciary standard that is currently applied to registered investment advisers. He then used Alibaba's upcoming IPO as a hypothetical example of how technically violating the proposed rule would be in a client's best interest.
"We are a co-managing underwriter, RBC, of the Alibaba public offering," Mr. Taft said.
Under a fiduciary standard as stringent as the one applied to RIAs, he argued, "we would have to say, sorry, we, RBC cannot sell you shares of Alibaba. Why? Because, by definition, we are a principal."
Due to U.S. federal securities laws around the marketing of IPOs, which mandate a so-called "quiet period," companies going public, and the banks underwriting the deals, are supposed to keep mum in the weeks leading up to the offering, no matter how innocuous
Gary Solway, managing partner of the technology, media and entertainment group with Bennett Jones LLP, says it is "very unfortunate" that RBC ran into this situation "because Alibaba was such a massive IPO."
The $2.5-million fee they reportedly missed out on was relatively insignificant – RBC would have been one of 35 banks on the deal – especially compared with the fees they collect from underwriting activity in general. The bigger concern here is "reputational risk" going forward, says Mr. Solway.
"People are very sensitive around these things," he said. "These are big issues, you don't want anything around your IPO that looks like it's bad news, or bad luck, or bad anything." Arguably more importantly, a company would not want to appear to do anything that would give other parties pause in considering whether to hire you in the future. Had RBC not withdrawn from the IPO after Mr. Taft's statement, its involvement could have caused "a huge amount of inconvenience," says Mr. Solway.
"People might have long memories."