Merrill Lynch & Co.'s efforts to expand its loan syndication operation are paying off.
The investment banking firm, which starting building the business about seven years ago, is now ranked among the top 10 syndicated lenders in the United States. Merrill placed seventh during the first quarter, 19 places higher than a year earlier, according to Thomson Financial Securities Data.
One reason for the move up the charts is that "we've been focusing on the business," said Jack Yang, who co-heads Merrill's global leveraged finance team.
Pullbacks by companies hit by troubled loans also helped.
While making significant strides, Merrill - with $4.5 billion, or 2.1% of the market and just four deals in the first quarter - is still far below the top three syndicated lenders, which together captured close to 70% of the market during the first quarter.
J.P. Morgan Chase & Co., which retained the top spot, garnered $83.1 billion, or 38.6% of the market, according to Securities Data. Citigroup's Salomon Smith Barney ranked second in the quarter, edging ahead of Banc of America Securities.
The two companies have been trading the No. 2 spot for some time and are nearly even in proceeds and market share. Salomon captured $31.7 billion, or 14.7% market share in the first quarter, and Banc of America captured $31.4 billion, or 14.6%, according to Securities Data.
"Basically the league table results are consistent with our industry-focused client selection process," said Joe Siman, head of floating rate distribution at Banc of America Securities, a subsidiary of Bank of America Corp. He said the Charlotte, N.C., company has been taking a more targeted approach than before by funding companies within specific industries, though he would not indicate which sectors it is targeting.
Mr. Yang said Merrill's market-share increase is the result of a plan put in place at the end of 1999 that combined the firm's high-yield bond origination practice with its leveraged loan origination activities to offer clients a more integrated service, he said.
At the same time, the lending department began developing a closer working relationship with the mergers and acquisitions group, Mr. Yang said.
In the first quarter Merrill lent to a group of recession-resistant industries, including health care, gambling, supermarkets, utilities, food, energy, and telecommunications, he said. "Merrill Lynch does well in difficult markets," Mr. Yang said. "Issuers value our distribution prowess; investors appreciate our strong credit track record."
William Maier, a senior vice president and director of corporate finance at Natexis Banques Populaires who has worked with Merrill on a number of loans, said, "It is a case where slow and steady and consistent, which Merrill Lynch is," allowed the firm to make strides.
The French banking company, which is particularly active in the leveraged loan market, invests with many lenders, including J.P. Morgan Chase, Lehman Brothers, and Deutsche Bank, Mr. Maier said.
Merrill's interest in building this business dates to 1994, when it raided Chemical Banking Corp.'s loan syndication and acquisition finance groups and hired five of its seasoned professionals, including Mr. Yang. (Chemical bought Chase Manhattan Corp. in 1996 and is now part of Morgan Chase.)
Since then, Merrill has focused on its syndicated lending business, especially while a number of other competitors have been distracted by mergers, Mr. Maier said.
Many lenders, including Salomon and Banc of America, have been curtailing lending to less-profitable clients that do not buy multiple services said Chris Donnelly of Loan Pricing Corp. in New York. "Incremental business is probably the most important thing."
Banking companies are targeting clients that will generate other revenues through cash management, mergers and acquisition advice, bonds, or equities, he said.
Chad Leat, head of global loans at Salomon, said the Citigroup Inc. unit is well positioned to grow, especially in a slow-market environment, because of its ability to move back and forth between the high-yield and leveraged loan markets.