Banks' capital market operations won a 25.7% market share in underwriting bank debt in the third quarter, up from 11.5% a year earlier.
The capital markets units of J.P. Morgan & Co. and NationsBank Corp. showed a strong advance, Securities Data Co. reported. Morgan jumped to third place from seventh, with 19 issues totaling $4.3 billion, and NationsBank rose to sixth from 10th, with nine issues for a total of $1.6 billion
Analysts attributed the gains for both NationsBank and J.P. Morgan to deals both capital markets groups won from their parent banks.
Indeed, they said banks' gains in general could be attributed to their in-house deals.
Merrill Lynch & Co., which underwrote 60 issues for a total of $5.7 billion, rose to first place in bank underwriting in the third quarter from fifth place a year earlier;
Merrill captured a 23% market share in the third quarter, while Morgan garnered 17.3% and NationsBank won 6.3%.
Securities Data counts all underwriting data in compiling the rankings, including long-term bonds, asset-backed securitizations, and mortgage- backed securitizations. Tax-free municipals are the only underwriting category excluded.
Although in-house underwriting was on the rise, bank treasurers differed on the wisdom of awarding their own capital-raising assignments to their own capital markets operations.
"Why should we make the investment in the time and people, and then go to our clients and ask them to give us business if we as a company aren't willing to show the same level of confidence in our people?" asked John E. Mack, NationsBank treasurer. "We really are one company, and we support our own."
But a treasurer at another bank with its own capital-markets operation said that awarding the deals to the in-house unit could harm long-term relationships with Wall Street firms.
He said the in-house capital markets group often participates in its own deals but does not necessarily win them. "Anytime you rely on one firm," he said, "you are limiting your opportunities in terms of what other things they may be able to do for you."
Another treasurer described the process as a zero-sum game. "We are not going to sit here and haggle with our group for a lower price," said the treasurer, "but they can't negotiate for a much higher price, because then the company doesn't look good."
For his part, NationsBank's Mr. Mack sees the relationship as potentially benefiting both the capital markets group and the corporation. Mr. Mack said he employs the same philosophy in pricing he did before awarding the business to his capital markets group, and added: "We're very pleased with the progress they've made."
Others pointed out that the growth in market share in underwriting bank debt is attributable only in part to the internal business. Both NationsBank and J.P. Morgan have made a commitment to expand these businesses.
"We attribute our ability to distribute large quantities of paper to the quality of our sales force and research capabilities, which demonstrate our commitment to our clients," said John Mullen, managing director of Morgan's financial institutions group.
