Commercial banks, which have come on strong as merger and acquisition advisers in recent years, gave up considerable ground during the first half.
Banks participated as advisers in 47.8% of deals announced through June 30, as measured by value. That is down from 61.3% in all of last year.
Citigroup Inc. and its Salomon Smith Barney unit led the pack-and typified the trend. The company played a role in 20% of first-half deals, down from 25.4% in 1998.
The erosion of banks' market share came amid near-record volume of M&A activity. Announced U.S. mergers and acquisitions were valued at $894 billion in the first six months of the year, according to Thomson Financial Securities Data Co. Full credit for each deal can go to multiple firms.
Most bankers called the downturn an aberration. In a quarter where no one deal dominated the market, much of the action was concentrated among traditional Wall Street firms.
"This year we haven't had the impact of the mega deal," said Rick Escherich, a managing director and head of M&A research at J.P. Morgan & Co. "Last year there were 10 transactions over $30 billion; that influences sectors and overall market volume."
Mergers among banks may have also dampened business. Five of the seven leading commercial banks in the business were grappling with deals of their own in the first half.
Buoyed by a near-record second quarter, in which $548 billion of transactions were announced, the robust dealmaking positioned the overall M&A market to top last year's record of $1.65 trillion.
The latest quarter, in fact, was the second-strongest ever, falling short of last year's second quarter, when $679 billion in deals was announced.
What makes the volume this year so remarkable, analysts said, is the absence of multibillion-dollar mergers. Transactions like Daimler Benz's November purchase of Chrysler Corp., valued at $38 billion, often spur competitors to ink deals of their own.
Instead, Mr. Escherich said, this year's M&A market reminds him a bit of home run hitting recently in Major League Baseball: overall totals are up, but no individual player stands out.
"Last year's M&A activity was like the home run race between (Sammy) Sosa and (Mark) McGwire," Mr. Escherich said. "There's still a lot of home runs being hit this year ... but there hasn't been a home-run deal."
In the first half of the year, telecommunications companies announced at least 156 mergers totaling $235 billion, accounting for 26.6% of the period's M&A deal volume.
Other sectors behind M&A activity in the first half included radio and television broadcasting, which made up 12.1%; banking, 6.5%; electric, gas, and water distribution, 6.3%; and oil and gas, 4.7%.
The M&A market is "on an extraordinary run," said Mark Davis, co-head of M&A for Chase Manhattan Corp. "The pieces in place have not changed. There are strong financial market characteristics. CEO confidence is strong, and that's the best single predictor of M&A activity."
Citigroup's Salomon Smith Barney, the leader among banks, advised on 94 deals worth $178 billion.
Chase Manhattan Corp. was second among banks, advising on 33 deals worth $116 billion. J.P. Morgan advised on 40 deals, worth $63.4 billion. Only Chase gained substantial market share: up to 13% from 9.6% a year ago.
The Chase rise has come as a point of satisfaction to Mr. Davis. When he joined the bank from Salomon Brothers Inc. in 1995, the $361 billion-asset banking company ranked 30th. It ranked eighth through the first half of this year.
"People sometimes forget this is the union of three money-center banks," Mr. Davis said. "The client relationships we brought together give us a huge competitive edge."
So far in 1999, Chase advised Olivetti SpA in its bid to buy the larger Telecom Italia SpA and it advised Global Crossing Ltd. in its deal to buy US West Inc. and Frontier Communications Corp.
Asked if it was tougher for commercial banks to compete in the M&A market, Mr. Davis declined to comment.
"It's always been competitive," he said.
But he did point out that Chase has been on a hiring binge, plucking away 20 advisers from Wall Street's leading M&A firms during the last three years.