Chase Manhattan Corp. may lag behind its money-center brethren when it comes to syndicating loans for corporate clients. But when it comes to loan syndications for commercial bank holding companies, Chase is a leader of the pack.
That's no accident, Chase executives says. Determining that it makes more sense to concentrate on certain industries rather than go head to head with other syndicators for every piece of business, Chase's corporate finance group is aggressively pursuing financial institutions to expand its syndications business.
Chase, the nation's sixth-largest bank, has led half of the $6.27 billion in major syndicated credit facilities for bank holding companies this year, Chase executives say.
Behind Chemical and Morgan
In contrast, the bank ranked seventh, behind Chemical Banking Corp., J.P. Morgan & Co., and others, in the overall syndication market in the third-quarter, according to Loan Pricing Corp.
Though just at tiny piece of the $79.7 billion syndications market, arranging credit facilities for banking companies is a steady business and one where Chase has emerged as a major player.
"Chase has made a commitment to the business," said the chief financial officer of a super-regional bank that is a Chase client.
Financial Backstop
With profitability restored, banking companies are tapping the capital markets. Many are relying on commercial paper, but they are increasingly using syndicated credit facilities as a backstop, said Thomas D. Novack, managing director of the financial institutions group at Chase.
"We've accelerated our efforts" to capture more of this business, said Mr. Novack, a 20-year Chase veteran.
While he would not provide profit or revenue data for the financial institutions group, Mr. Novack said the business is a "significant" contributor of investment banking fees, which totaled $332 million for the first nine months of this year, up $14 million from the same period last year.
Over the last 18 months, Mr. Novack has fine-tuned and expanded the business Chase does for other banking companies by focusing on 25 regional and super-regional institutions.
His team is marketing a range of wholesale services - from corporate finance and underwriting to foreign exchange and clearing services - through a single dedicated unit.
This type of relationship-driven approach to serving corporate clients is not unique to Chase. Many banks that specialize in corporate finance, trading and advisory services, such as J.P. Morgan & Co., Bankers Trust New York Corp., and Chemical, provide clients with one-stop shopping for all their financing needs.
What's new for Chase is coordinating marketing efforts of several different wholesale businesses, including transaction processing, corporate finance, underwriting, and trading, to build relationships with banks. In the past, Chase did little to coordinate its sales efforts or share information on client needs among business units.
"We started integrating the marketing effort in 1991, and last year we really got our act together," said Charles H.S. Malis, marketing executive for global payments and treasury services.
The effort has paid off. Of the 13 major bank facilities arranged by third parties this year, Chase has led six, said Mr. Novack. The bank's most recent win occurred last month when it arranged an $800 million facility for Fleet Financial Group.
Structure of the Deal
The transaction involved two tranches, a $500 million three-year facility and a $300 million one-year facility. Both had a borrowing rate of 31.25 basis points above Libor, said Chad Leat, managing director in charge of syndications.
Chase arranged the deal and will serve as the document and administration agent as well as coagent for the syndication. The other agents are First Chicago Corp., Citicorp, and Morgan Guaranty Trust.
Chase has also led credit facilities this year for regional banks such as BB&T Financial Corp. and First Union Corp. and large institutions like BankAmerica Corp. and Mellon Bank Corp.
Chase's main competitors include J.P. Morgan, Citicorp, Chemical, First Chicago, and Continental Bank Corp.
Karen Keating, Chase managing director of syndications and structured sales, said bank issuers often prefer Chase's methods because of the better sense of control they maintain in the syndication and because relationship-driven transactions often generate better pricing.
Bankers concur.
"They understand what we're about, and they've done their research," said Robert A. Gray, vice president in the finance group at First Union. Chase led a $300 million facility for the bank in June. "They've come to us with a number of ideas for structuring, and even though we chose another option, it's that kind of innovation that we like to see."
A chief financial officer at a superregional bank said that after considering proposals from several institutions - all with close ties to the bank - he chose Chase because it "came in with an edge."
"They have the distribution capabilities and they're aggressive in terms of finding ways of adding value to the relationship," said the executive.
Underwriting Power
Chase hopes that these relationships will help it garner other business with banking companies. One of a handful of commercial banks that has regulatory permission to underwrite corporate debt, Chase has been able to land a few deals to sell debt securities issued by banking companies through its section 20 subsidiary, Chase Securities Inc.
Chase is underwriter, along with Donaldson, Lufkin & Jenrette and Smith Barney Shearson Inc., a $2 million subordinated debt issue for First Union.
Over the last 12 months Chase Securities has comanaged or acted as agent for several other transactions for Comerica Bank, Mellon, and Liberty National Bank.
"The strategy of Chase Securities Inc. toward the banking industry is rather straightforward," said Louis DeCaro, managing director of capital markets activity. "We want to serve as a manager on the issuance of senior and subordinated debt and act as agents on medium-term note programs."
Far from |Bulge Bracket'
Chase has a long way to go before it breaks into the "bulge bracket" of investment banks that underwrite the majority of corporate securities. The bank ranked 14th, with $1 billion in underwriting volume, or a 2.5% market share, for the period of January through November, according to Securities Data Corp.
J.P. Morgan is one of the few banks to make great strides in underwriting, particularly for commercial bank issuers. The bank is ranked seventh, with a 14.4% share, so far this year.
Chase bankers long to emulate J.P. Morgan's success in corporate finance and investment banking. By focusing on niches like banking companies, Chase believes that it can eventually go head to head with the big players on Wall Street.
