Expanded corporate finance product menus helped some of the nation's largest banking companies offset shrinking margins in the traditional commercial lending business last year.
Several, including Chase Manhattan Corp., Bankers Trust New York Corp., and BankAmerica Corp., posted robust corporate finance revenues in 1997. Their gains from new fee-producing businesses, including securities underwriting and mergers and acquisitions advisory, helped insulate these banks from swings in the fortunes of the market, analysts said.
Chase Manhattan, for example, reported a record year for corporate finance in 1997. The $366 billion-asset banking company raked in more than $1 billion of corporate finance revenue by yearend, a 22% gain from its previous record, set in 1996.
The healthy uptick enabled Chase to offset a $160 million trading loss, analysts said. It also partially insulated Chase from interest rate compression, which dampened interest income reaped from commercial loans made and held on the bank's books.
"Chase is in a position where shifts in the shape of the market don't" put them at a disadvantage, said Lawrence Cohn, an analyst at Ryan, Beck & Co.
In 1997, Chase's revenues from corporate lending, $1.47 billion, were down 9% from 1996. But it reaped fees from other components of corporate finance, particularly loan syndications and high-yield debt underwriting.
At yearend, Chase said fees from corporate finance and syndication were $1.1 billion, up 16% from 1996.
"Reductions in the interest rate spread were more than offset last year by higher fees from arranging loans and higher fees in junk bonds," said Mr. Cohn.
Lending, however, remains a driving force at Chase. It "has been the engine for a lot of the growth in our other businesses," as longtime lending clients turn to the bank for additional services, said James B. Lee Jr., vice chairman in charge of investment banking.
"We're at a point where we're starting to really see all the relationships that we have produce significant incremental value for us," he added.
At yearend, Chase held the leading market share in loan syndications, with $473.7 billion, or 43% of the market. And in high-yield underwriting, Chase ranked fifth overall and first among commercial banks, with $8.6 billion, or 7% of the market, all according to Securities Data Co.
But the company still has considerable ground to cover in other businesses, analysts said. In investment-grade bond underwriting, it ranked eighth overall, with $19 billion, or a 4.2% market share. J.P. Morgan & Co., the highest-ranked commercial banking company, was fifth, Securities Data reported.
And in mergers and acquisitions advisory, Chase came in a distant 17th, with $44 billion of fees for announced deals, according to Securities Data.
Mr. Lee said the bank would continue to build the businesses internally this year. "We have a lot of room for growth on a global basis," he said.
Many analysts question whether Chase will be able to maintain double- digit gains in corporate finance in the absence of equity underwriting capability, and the bank has said it has no plan to begin building that in the near term.
Several banking companies, however, have already added equity underwriting to the mix and say the move has paid off.
At Bankers Trust, for example, fees from corporate finance grew 19%, to $1.1 billion last year. Chairman Frank N. Newman said higher fees from corporate finance throughout the second half of the year highlighted the "strong momentum" from the September acquisition of Alex. Brown & Sons, an investment bank.
Similarly, BankAmerica Corp., said fees from corporate finance helped propel revenue from a variety of fee-generating businesses 28% higher in 1997, to $1.8 billion. The bank said its acquisition of investment bank Robertson Stephens & Co. was responsible for $195 million of that gain in the fourth quarter.
