With municipal bond issuance down 35% for the first three quarters of the year, the underwriting business remains competitive as banks reach for whatever deals may be available.
And while the biggest underwriters have generally maintained their market share, low issuance has allowed some smaller players to make a splash in the top 10.
JPMorgan has grabbed the top spot for the first three quarters of 2011 and increased market share from this time last year, when it placed third. The bank was the lead book-runner on 257 deals, representing almost $25 billion. JPMorgan increased market share to 13.3%, up from 11.3% this time last year.
“Our place in the rankings is a by-product of our client-first focus,” said head of public finance Jeff Bosland. “We work really hard to be important to a lot of clients across the country, and the number of mandates is a function of that focus combined with a broad national approach.”
Robert Servas, head of public finance syndicate, said the calendar in the fourth quarter is picking up, and is expected to be JPMorgan’s largest underwriting quarter of the year. The bank is estimating about $90 billion of issuance.
“Issuance has been partly driven by rates,” Servas said. “Yields are at historic lows, which makes it a very attractive time for issuers. We’ve positioned ourselves so that borrowers, once they are ready to enter the market, look to JPMorgan for their financing needs.”
“It’s not easy in this environment, but we continue to stay client-focused and we’re seeing the benefits of that strategy,” Bosland said. “Looking ahead to 2012, we’ll continue our commitment to our investor and issuer clients and dedicate our resources to meet their needs.”
Bank of America Merrill Lynch, which placed first last year, moved down to third place for the first three quarters of 2011, lowering its market share to 12.4% from 13.7%. It was the lead book-runner on over $23 billion of deals this year.
“It’s a very competitive business and we feel like we are out there making good proposals every day,” said John Hallacy, managing director and director of market research. Some firms have ramped up attention in the competitive bid area, so competition is especially fierce there, he said.
“We also haven’t had too many blockbuster deals,” he said. “There have only been about six deals that total over $1 billion, so it’s been a lot of smaller- to medium-sized deals.”
Citi and Morgan Stanley, which maintained their second and fourth place spots, respectively, saw market share dip slightly. Citi’s share fell to 13.3% from 13.5%. In the first three quarters, Citi was the lead book-runner on 250 deals worth $24.9 billion. Morgan Stanley saw its market share fall to 7.7% from 9.2% and was the lead book-runner on 172 deals representing $14.4 billion.
Brian Wynne, head of the muni bond syndicate at Morgan Stanley, said the firm has been consistent, particularly in the negotiated market. For the third quarter alone, its market share increased to 10% from 7.6% in the second quarter.
“In the negotiated business market share, we remain highly stable and we are consistent,” he said, adding that Morgan Stanley typically has a market share of around 10%. “We are focused on delivering high-quality products for negotiated clients.”
Wynne added that the third quarter saw an increase in supply from earlier quarters. “And with the help of historic low interest rates, we’re seeing an increase in normal supply numbers for the fourth quarter,” he said. In October, Morgan Stanley is scheduled to be the lead book-runner on at least $3 billion of negotiated deals.
More interesting is that the increasingly cutthroat market for underwriting has forced banks to either sink or swim. Many banks have increased market share and improved rankings, while others have lost significant business.
RBC Capital Markets, Wells Fargo, Piper Jaffray & Co. and Stone & Youngberg LLC all increased market share, while Barclays Capital, Goldman, Sachs & Co., Morgan Keegan & Co., Robert W. Baird & Co., and Siebert Brandford Shank & Co., all fell in the rankings.
RBC jumped to fifth place this year from seventh last year, increasing market share to 5.3% from 4.3%. In the first three quarters of the year, the bank was the lead book-runner on $9.9 billion of deals.
“RBC’s commitment to the municipal business has never wavered,” said Chris Hamel, head of U.S. muni finance at RBC. “Our top-five ranking is one indication that the strategic growth and addition of resources to our municipal platform over the last few years is yielding results.”
Hamel added one measurement RBC looks at for 2011 is how much the bank’s volume is down compared to competitors. While total muni issuance for the first three quarters is down 35%, RBC’s volume is down only 21%. “We view our volume compared to the rest of the industry as a reflection of our ability to compete more effectively for the limited business that is getting done,” he said.
One of the ways in which RBC has been able to gain market share is increasing business with the larger market. Typically, RBC’s core business has been in the middle market of $100 million or less. Hamel said that since 2008, RBC has had a concentrated focus on the larger issuers.
“Being fifth place is new, but our work in that area is not,” he said. “We put that strategy in place in 2008 and we are beginning to see the results of that focused effort now.”
Hamel said he expects issuance in the fourth quarter to pick up, and RBC’s calendar “is at least as strong as we’ve had all year, if not a little more active.” In 2012, he said RBC will continue to build on its foundation in the middle market, and will continue to advance the focus among the top 500 issuers.
Stone & Youngberg was the only firm to increase the amount of business it underwrote in terms of dollars, despite a reduction in muni issuance across the board. It jumped to 11th place in the first three quarters of 2011 from 19th last year and more than doubled its market share to 2.3% from 0.9%. It was the lead underwriter on $4.34 billion this year compared to $2.77 billion last year. The numbers do not take into account any municipal underwriting business done by Stifel Financial, which acquired Stone & Youngberg earlier this year.
“We have been fortunate to see strong activity this year in the markets that we have a strong presence in,” said Steve Heaney, head of public finance for Stone & Youngberg. He added that the firm has a strong presence in the redevelopment area in California and school districts in California and Arizona, both of which saw a lot of action this year.
While the core business has been in the middle markets, S&Y has also paid attention to the larger market participants in recent years. “As we’ve grown and gotten additional depth in our banking groups, we believe we can bring added value to larger issuers and our goal is to continue to be attentive and aggressive in our markets,” Heaney said. “We’ve got our bankers focused on those two goals and we’ve got an underwriting desk with a lot of strong capabilities.”
With the acquisition by Stifel closing this week, Stone & Youngberg’s newly combined unit could make an even bigger splash next quarter. “The combined resources we will now have will actually begin to be used by our combined groups to produce strong results throughout the system,” Heaney said.