BankAmerica Adds 4 Traders To Its High-Yield Bond Sector

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BankAmerica Corp. has added four traders and a researcher to its burgeoning high-yield bond unit.

The high-yield market, so named because of the greater return on bonds for companies with lower debt ratings, has long been the bailiwick of investment banks.

But commercial banks that are building investment banking subsidiaries are turning to the high-yield business as a way to strengthen relationships and retain clients.

"High yield is one of two or three hot areas right now," said T. Lee Pomeroy, a consultant with the executive search firm Egon Zehnder International.

Analysts said the high-yield area is a natural product for BankAmerica's corporate client base.

"Banks, like BankAmerica, that have strong credit relationships with high-yield companies find that high-yield underwriting is a product they can easily sell to those relationships," said Ray Soifer, a bank analyst at Brown Brothers, Harriman & Co. "Banks can use the product to protect their relationships as private companies enter the public market."

Zed Francis, executive vice president of BankAmerica Securities Inc., Chicago, said the high-yield business offers a way to strengthen ties to clients and reduce the risk that they would turn to investment banks to raise capital.

Banks want to provide capital in whatever form their clients need, whether in bank loans or high-yield bonds, Mr. Francis said.

"Competition abounds across the industry," Mr. Francis said. Commercial banks are rapidly building their Section 20 subsidiaries within the constraints of the Depression-era Glass-Steagall Act.

Recognizing the challenge to provide the whole range of financial services, investment banks have responded by building loan syndication operations as well.

"Everybody's responding to the need to build up the capital-raising abilities across all of the markets," Mr. Francis said.

Mr. Soifer said BankAmerica has several advantages in building its high- yield business.

Being the only wholesale bank west of the Mississippi and having access to clients of Chicago's Continental Bank, which BankAmerica acquired, will let BankAmerica develop a steady flow of deals, he said.

But the high-yield business has attendant risks.

"All underwriting activity is potentially risky, and underwriting is highly competitive as well," Mr. Soifer said. "The risks are: You could have a blown underwriting, or you may not generate enough revenue to cover your costs."

Mr. Soifer noted that the high-yield business is cyclical, which means a bank has to be able to tolerate volatile revenues.

"One of BankAmerica's strengths is its huge, stable retail earnings base, which gives the bank some staying power," Mr. Soifer said.

Thus far, the high-yield business has been profitable, said Mr. Francis.

"In March, we made a key hire in John Hakala, who came out of J.P. Morgan & Co. and previously headed high-yield trading at Bankers Trust New York Corp. and Goldman, Sachs & Co.," Mr. Francis said. "Getting the head of high-yield trading was a key position because that's where you're taking the risk."

In the latest move, Mike Miller and Jason Bossard, formerly of Nomura Securities; Christa Ciabattoni of Morgan; and Elizabeth Kullman of Freeman Securities are joining BankAmerica's trading desk. Media analyst Barry Schwartz, formerly of Nomura Securities, joins the unit's research staff.

Separately, John Richards announced his resignation as head of BankAmerica Securities' foreign exchange trading operation. He plans to join National Australia Bank in New York.

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