Banks Ride Junk Bond Market Wave

Commercial banks have jumped into the high-yield bond market with gusto, emerging as some of the most active lead managers in recent weeks.

In just the past week, commercial banks brought at least four deals to market and were preparing to launch four more. At press time, Bankers Trust New York Corp. and Chase Manhattan Bank were leading two deals each.

Market sources said activity is clearly accelerating as Thanksgiving approaches. "There's really a pre-holiday surge," said Mark Dawley, a senior managing director at BA Securities, the underwriting affiliate of BankAmerica Corp. "We, as a group, are making significant market-share pickups in high-yield, and we expect that to continue."

Dean Kehler, a managing director in high-yield securities at CIBC Wood Gundy, said that acquisitions are driving much of the bank's progress in this market.

"The share of acquisition finance done by bank-based high-yield dealers, as opposed to Wall Street-based dealers, is growing and will continue to grow," he said.

While the investment banks acknowledge that their commercial banking brethren have made some progress, they said that banks aren't necessarily gaining substantial market share. Rather, they are participating in a record-shattering high-yield market.

New issues through this week are expected to break the $65.3 billion record set in all of 1993, according to CS First Boston.

"Commercial banks have made some headway," said Steven Ratner, a managing director in high-yield capital markets at Donaldson Lufkin & Jenrette. But, he said, they've done no more or less recently than they had throughout the year.

Driving much of the recent issuance are strong flows into mutual and pension funds, and a corporate customer base that is becoming increasingly aware of the high-yield market, said Robert Kricheff, a managing director in high-yield research at CS First Boston.

"Of course," he added, "there are a lot more underwriters out there to educate the customers."

Tom Haag, a high-yield portfolio manager at the Lutheran Brotherhood in Minneapolis, said that having a larger list of underwriters increases the number of market access points for issuers.

"In this type of market, when you have 35 deals in the market in a couple of weeks span, you almost have to have more underwriters," he said. "Back in the old days, when there were only six or seven investment banks, you couldn't do it," he said.

"Overall, the market demand is for decent quality issues," Mr. Haag said. "A lot of people like deals which can be purchased by all types of investors, from pension funds to insurance funds."

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