JPMorgan, Goldman Boost Underwriting Market Share: Rankings

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JPMorgan and Goldman, Sachs & Co. gained ground on Bank of America Merrill Lynch in the rankings of leading municipal bond dealers in 2013, a year marked by lower issuance.

Quarterly League Tables

Goldman was the only new entrant into the top five underwriters by long-term negotiated par amount, jumping three spots from its 2012 ranking of eighth. B of A Merrill maintained its lead in total deals, claiming 14.4% of the market, or $45 billion.

JPMorgan Securities LLC gained more market share in 2013 than any top 10 underwriter, claiming 12.4% of the market, compared with 11.7% in 2012. The bank maintained its position as runner-up to B of A Merrill as manager to $38.5 billion.

Public finance teams at the banks lamented a municipal market in 2013 that was characterized by uncertainty and poor performance following a Federal Reserve announcement in May that the U.S. government would slow down its quantitative easing program of buying up bonds.

"It was a significant bump in the road that took some time to recover from," Paul Palmeri, head of public finance at JPMorgan, said in an interview. "However, over the course of the next several months muni ratios returned to where they had been before the Fed meeting."

The challenge for dealers became a question of how to bring new bonds to market at a low yield for issuers while remaining appealing to hesitant investors, bankers said.

"Our goal is to achieve the lowest cost of issuance while ensuring the broadest investor distribution," Palmeri said. "Even through the challenging market conditions at the end of June, we were able to strike that balance."

For the year, long-term muni volume fell 13.1%, to $329.8 billion across 11,267 deals, compared with $379.6 billion in 13,115 issues in 2012. Total issuance numbers for 2013 were hurt by a decline in refundings from 2012 as interest rates showed signs of upward mobility.

"There were a number of issuers during the middle of the year that decided to postpone until the environment got a bit better, and that decision proved to be prudent," Palmeri said.

The 10-year triple-A yield vaulted 99 basis points in 2013, while the 30-year triple-A yield rocketed 133 basis points, Municipal Market Data numbers showed. Refunding issuance fell 30% to $111.1 billion in 2013, compared with $158.2 billion the year before.

JPMorgan and Goldman public finance teams said that the transportation sector showed strength among shrinking volumes in most municipal sectors. The negotiated par amount for transportation sector bonds was nearly unchanged, slipping to $43.36 billion, from $44.1 billion in 2012.

"One of the sectors where volume held up was the transportation sector, which is an area we focus on and were able to benefit from a fairly robust market for transportation issuance," Kevin Willens, managing director and co-head of public finance at Goldman, said in an interview.

Previously ranked eighth on the league tables after being surpassed in volume by RBC Capital Markets and Wells Fargo & Co. midway through the year, Goldman took 6.7% of the market in the third quarter, edging out the two firms by less than $300 million for the No. 5 spot.

RBC was senior manager to $16.99 billion of par, while Wells led $16.98 billion of deals. Citi and Morgan Stanley ranked third and fourth, respectively, with $36.8 billion and $20.6 billion of deals.

Since 2008, RBC, Wells and JPMorgan are the only top 10 firms to have seen an increase in negotiated underwriting in par amount. Wells' negotiated business has grown 39% in the past five years, while RBC's has increased by 13%.

"Issuance volume, regulatory changes and interest rate volatility will create headwinds in 2014 for all market participants," Chris Hamel, head of municipal finance at RBC, said in an email. "But we have a strong platform, a growing client base and a high quality franchise which will enable us to pursue our goal of increasing our market participation."

Goldman, lead manager on fewer deals than any underwriter in the top ten, managed some of the biggest deals of the year, including $2.92 billion of Grand Parkway Texas toll road bonds. The firm also co-lead $2.2 billion Foothill/Eastern Transportation Corridor Agency of California bonds and was senior manager to $1.6 billion of tax-exempt Long Island Power Authority bonds.

"While we do a fair amount of larger deals we also have a diversified model that includes medium-sized issuers and a lot of public-sector transactions, like stadium financings and private university or healthcare deals that don't always show up in the league tables," Willens said.

JPMorgan's highlights within the transportation sector included $900 million of Chicago's O'Hare airport bonds, a $500 million Broward county airport deal and $400 million of Midway airport bonds.

"There was a surprising amount of activity with large deals in the fourth quarter of this year," Jamison Feheley, managing director of public finance banking at JPMorgan, said in an interview. "While late December was slow, there was quite a bit on the calendar right after Thanksgiving."

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