Sell Side

Big 3 Underwriters Shift 1st-Half Slots

Low issuance has made the underwriting business more competitive as the top three underwriters battle to maintain their market share.

Quarterly Rankings

Those firms — Citi, JPMorgan and Bank of America Merrill Lynch — have been shuffling between first, second and third place.

Citi beat out Bank of America Merrill for the title of top underwriting manager for the first half of 2011 and the second quarter 2011, a spot B of A held for all 2010 and the first quarter 2011.

For both the first half of this year and the second quarter 2011, JPMorgan and B of A Merrill were on Citi’s heels, coming in a close second and third place, respectively.

Citi is up from the first half of 2010 when it took second place to B of A, and one analyst said that is not unexpected.

“Getting the first or second spot adds credibility to a firm’s overall platform, so it is not surprising that these three are trying to compete for that top spot,” said Tom Kozlik, municipal credit analyst at Janney Capital Markets.

“Citi has annually been a firm that is competing for the top spot, way before the 2008 merger-acquisition period,” he said. “So it’s important for Citi to have that top spot,” whereas JPMorgan and Bank of America have been in the top 10 going back five or 10 years, he said.

For the first half of 2011, Citi was senior manager on $15.2 billion of deals, underwriting 165 issues and holding 13.3% of market share. JPMorgan underwrote 159 issues worth $13.7 billion and had a market share of 12%.

B of A Merrill participated in 142 deals, underwriting $13 billion of bonds and holding 11.4% of market share.

Bankers at JPMorgan said their high ranking shows their dedication to the market.

“Over the past two years, we have invested heavily in banking talent to execute our business strategy of helping more clients,” said Jeff Bosland, head of public finance at JPMorgan. “We’re being rewarded for that investment now. We have resources to help our clients in all aspects of the business from investor marketing, to distribution and investor relationships, to capital commitment.”

“We are very competitive even with issuance volume down,” said Robert Servas, head of public finance syndicate at JPMorgan. “Our commitment to issuers continues to be very strong whether it’s through the competitive or negotiated market. We are bidding on a large number of deals across the spectrum, making sure that issues are priced efficiently.”

“From the underwriting side, we are looking at deals that matter to clients regardless of size,” Servas said. “That strategy has not changed.”

He added that while low volume has made the market more competitive, “we are dedicating strong resources to all aspects of the market.”

John Hallacy, head of municipals research at Bank of America Merrill Lynch, said, “our strategy is service, service, service.” While volume is off significantly, “we know that at some point, the present sentiment is going to change and that infrastructure projects still need to get done, so we remain optimistic about business.”

Hallacy said that until volume picks up, his firm is pressing on fundamentals and trying to service clients on both the issuing and investor side.

“Our secondary market activity has been strong and there has been a lot of trading and especially follow-through trading after new deals have been priced,” he said.

Citi analyst Mikhail Foux expects business to pick up in the second half of the year.

Rounding out the top five are Morgan Stanley and RBC Capital Markets underwriting 112 deals worth $8.6 billion and 245 deals worth $6.3 billion, respectively.

“Both Morgan Stanley and RBC have been making a tremendous push in the market selectively,” Janney’s Kozlik said. “So while they aren’t in those top spots, they are selectively trying to be in areas that make sense for them based on the strengths of their platforms.”

The second half of the top 10 senior managers included Goldman, Sachs & Co., which participated in 39 deals and underwrote $5.7 billion of debt. It underwrote the fewest number of deals of all the top 10 managers, maintaining its tradition of focusing on larger-scale offerings.

On the opposite end of the spectrum, Morgan Keegan & Co. placed ninth, underwriting $4.1 billion and participating in 215 issues, the third highest of all the top 10 senior managers, showing that its relative par amount per deal is smaller.

“Low issuance has made it much more competitive and we are pleased at how we did in the first 6 months of the year considering the competitiveness of the environment,” said Robert Baird, executive managing director and president of investment banking at Morgan Keegan.

“We’re always trying to increase market share and we do that through staying focused on our clients and continuing to retain and attract very good investment bankers,” he said. “We have a very good public finance team, it is intact, and we are not contemplating any significant layoffs.”

Baird said he can see other firms laying off bankers and that creates an opportunity for his firm.

“We serve our clients and are appreciative to be named the book-running manager for both small and large issues, and particularly pleased with some of the larger issue assignments the first six months of the year.

Big changes in the rankings include Piper Jaffray & Co., which moved up to 10th this year from 12th in the first half of 2010. The firm increased its market share to 2.6% from 1.6%.

Loop Capital Markets also moved up to 14th from 17th, increasing its share to 1.5% from 1%.

Firms that saw less success include Siebert Brandford Shank & Co., which dropped to 17th for the first half from 10th in last year’s first half.

That firm underwrote $1.2 billion in deals, down from $4 billion last year, and saw its market share slip to 1.1% from 2%.

In the competitive market, JPMorgan moved up in the ranks to first place from third place in the first six months of 2010. It was the senior manager on 66 competitive deals, underwriting $4.5 billion.

Citi held its number two spot, competing in 53 issues worth $3.9 billion.

Bank of America Merrill Lynch moved to third, down from first place in the first six months of 2010, underwriting $3.6 billion on 37 deals.

“It is a pretty significant change” that JPMorgan is on top of the competitive charts, Kozlik said. “Merrill Lynch traditionally has always been a very aggressive participant in the competitive market so its notable that JPMorgan now jumps to the top,” adding that “it’s a trend worth watching to see if JPMorgan continues to climb the charts.”

“Traditionally firms will try to position themselves and illustrate a leadership in the municipal sector by showing strength and aggressiveness in the competitive market,” Kozlik added. “It seems JPMorgan is trying to buy market share and rankings competitively.

Regional firms also are selectively making a big push. Janney is ranked 12th nationally in competitive underwriting in 2011 to date, compared to 52nd in 2007, for example.

In the negotiated market, the top three were Citi, Bank of America Merrill Lynch, and JPMorgan.

Piper Jaffray moved up to 10th from 11th, boosting market share to 2.7% from 1.5%.

Loop Capital moved up to 13th from 15th, increasing market share to 1.9% from 1.2%.

Siebert Brandford lost market share, down to 1.4% from 2.4% and moving down to 15th from ninth.


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