February 21, 2013 6:22 pm

Big banks’ share of corporate debt at new low

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The market share of the global “bulge bracket” investment banks in arranging corporate bonds and loans has fallen to an all-time low, as smaller groups muscle into the lucrative territory once the dominion of an elite few.

Before the financial crisis nearly 70 per cent of all corporate debt capital market activity was done by the top 10 banks, including JPMorgan, Citigroup, Bank of America Merrill Lynch and Deutsche Bank. But at the end of last year it fell to just below 50 per cent, according to data from Dealogic.

Global corporate debt volumes

Global corporate debt volumes

This comes as tougher regulation in the wake of the financial crisis and a weak trading environment has forced big banks to shrink their operations across the board, giving them less of a competitive advantage over the mid-tier banks, such as Bank of China, ING, RBC and Santander.

“The biggest players have started to lose some market share as they downsize and other banks develop their business,” said Sean Taor, head of European debt capital markets at RBC Capital Markets.

The shift comes as companies also give more of the lucrative debt advisory business – such as arranging corporate bond issuance – to their relationship lenders, as a way of rewarding them for extending credit in difficult times.

“When times are tough and balance sheets scarce, putting your relationship bank on a deal as a passive bookrunner is an easy and also very visible way of rewarding them,” said Marcus Hiseman, head of European corporate debt capital markets at Morgan Stanley.

As a result of that, the average number of bookrunners on a corporate debt deal has risen to an all-time high of 3.5 this year, up from 1.6 in 2005, according to Dealogic.

The trend has been reinforced by political pressure for banks in Europe to refocus their lending on their home markets. This has lowered the opportunities for some big banks to win ancillary business across the continent.

Royal Bank of Scotland’s market share of European corporate debt capital market bookrunning activity has fallen from 11 per cent in 2007 to 6 per cent last year, even though it is still top of the Dealogic league tables. Deutsche Bank’s share is down from 8.8 to 5.9 per cent over the same period.

Jobs in the debt business of the 10 largest investment banks have shrunk by 11 per cent since 2010, according to data by Coalition, a research firm.

Debt capital market fees have been a bright spot in the total global investment banking landscape, with underwriting fees rising by 34 per cent in 2012 from the previous year to an all-time record of $21.3bn.

By comparison, mergers and acquisition fees and equity capital market fees fell 6 and 14 per cent respectively over the year, according to Dealogic.

Additional reporting by Daniel Schäfer

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