Corporate bond underwriting is one of the few flourishing businesses in fixed income. The only problem for big banks is that, unlike in years past, bond underwriting is no longer their own personal sandbox. Smaller players keep showing up uninvited.
This year, the top five banks in U.S. corporate bond sales – J.P. Morgan, Bank of America, Citigroup, Goldman Sachs and Barclays –have combined to win the smallest market share in any comparable timeframe, according to Bloomberg. At 47%, the top earners still own the lion’s share, but that’s down from 59% in 2009, and it’s likely to keep dropping. Nearly 150 underwriters are now in the business.
If that weren’t enough, margins are also falling. Junk-bond underwriting fees, which pay the most, stand at record lows, according to Bloomberg. Fees at the top banks are down 6% despite volumes only falling 2.5%.
The news stands as a kick to the gut for fixed income businesses that are already reeling at top U.S. banks. FICC trading revenue may fall as much as 20% this quarter at the likes of Citi, J.P. Morgan and Goldman Sachs.
Interesting, Goldman President Gary Cohn made an argument last week that the bank is actually gaining market share in fixed income trading, though "it's tough to see." His argument is that Goldman is winning more higher-margin trades than competitors. So, when volatility returns, Goldman’s revenues should increase at a faster pace, or so goes his theory.
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Icahn and Lefty (WSJ)
Billionaire investor Carl Icahn, famed gambler Billy Walters and PGA golfer Phil Mickelson are being investigated for insider trading. News of the investigation may hinder its success as the government has lost the element of surprise. Secret wiretaps are critical to convictions.
People Moves (Bloomberg)
Goldman Sachs has named Stephen Scherr as its new chief strategy officer. Scherr is replacing Andrew Chisholm, who’s retiring after three decades with the bank. Elsewhere, UBS Global Chief Investment Officer Alexander Friedman is stepping down, and Chris Levett is returning to Moore Capital Management.
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You’re Fired (BBW)
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It Pays to Be Here (FT)
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Buzz Around the Office
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