Olivetti SpA's bid for Telecom Italia SpA might yield another first for commercial banks.

Olivetti, which announced Monday that it planned to launch the largest bond deal in history, $20.3 billion, has chosen two commercial banking companies to share underwriting duties.

Barclays Bank PLC and Chase Manhattan Corp. were named to a syndicate that Olivetti has put together to lead the offering. The group includes Lehman Brothers, Donaldson, Lufkin & Jenrette Inc., and Italy's Mediobanca.

Olivetti's hostile bid for Telecom Italia made banking history in March by generating a record $22.5 billion syndicated loan. The bank loan, plus the proceeds of the bond issue, would be used to buy Telecom Italia if the bid succeeds.

However, a few obstacles lie ahead for the bond deal. First, Telecom Italia is trying to merge with Deutsche Telekom. Second, the bond deal could be reduced or collapse altogether, depending on the response of Telecom Italia shareholders.

Nor is it clear whether Chase and Barclays will take the lead on issuing the bonds or be relegated to lesser roles as co-arrangers. Sources in the underwriting group said a leader of the deal has not yet been chosen.

Nevertheless, the presence of two commercial banks at the top of such a large bond offering may be a sign that they have come of age in underwriting large deals in the capital markets.

Dave Olsen, a vice president in the fixed-income syndicate at J.P. Morgan & Co., said banking companies need two things before competing for top deals: experience in leading successful transactions and investor relationships.

Though Morgan gained underwriting powers in 1989, he added, bankers there were not confident they could pull off a multibillion-dollar issue until the early 1990s. "We got an early start in seeing that the market for financial services was going to fit less neatly into traditional boundaries," Mr. Olsen said.

That recognition paid off when Morgan and Merrill Lynch & Co. co-led a $4.3 billion issue for Norfolk Southern in May 1997. At the time it was the largest bond issuance on record, and it still ranks among the top 10 bond deals in history. It was also the only deal at that size in which a major U.S. commercial bank had a prominent role.

Citigroup Inc.'s Salomon Smith Barney Inc. investment banking unit has had a role in two of the largest deals in history: a $6.1 billion offering for WorldCom Inc. last November and as co-leader of an $8 billion offering for AT&T Corp. in March.

But Salomon had been a major underwriter of bonds before its parent, Travelers Group Inc., merged with Citicorp in October.

With the Olivetti bonds, Barclays and Chase will face many daunting tasks that come with such megadeals. Prominent among these is "flow-back," when bonds bought at issuance are quickly resold, creating oversupply and deflating prices.

In a report issued last week, Gary Jenkins, head of European credit research for Barclays Capital, concluded that flow-back would create uncertainty for the Olivetti issuance. He also asked "how quickly the market could absorb an issue of this size."

Part of the role for the arrangers will be maintaining a two-way market in the bonds. Barclays, Chase, and the other syndicate members are to buy and sell the bonds for investors.

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