The IPO market has turned into a credentialing exercise where the issuer is doing the banker a favour by adding their name, not the other way around.
When everything is 10x oversubscribed on day one, the bank isn’t distributing risk – retail appetite is. The bank is just lending its name to signal legitimacy to institutional buyers.
This is fine until the market turns.
League tables drive this. Bankers are ranked on deal value, so they chase mandates with low fees, and issuers shop for the name that looks best on the DRHP cover. By the time the document is filed, the bank needs the deal more than the issuer needs the bank.
The bank still does real work. Due diligence, drafting, pricing, and regulatory liability all sit with the merchant banker. What has shrunk is the original job: distribution. When retail applies within hours and QIB books fill on day one, nobody needs a banker to find buyers.
The risk shows up in a downturn. A name lends credibility only while listings go well. A few failed issues and the credentialing runs in reverse: issuers will pay for actual placement again, and banks that treated distribution as optional will have to relearn it.