Commercial banks have made some impressive strides in the high-yield or junk bond market over the past year, rising in the rankings of lead underwriters.
By the end of the third quarter, Chase Manhattan Corp. had risen to fifth place, from ninth a year earlier, and J.P. Morgan & Co. had cracked the top 10, climbing five rungs to eighth place, according to data from Securities Data Co.
"The commercial banks are definitely involved in the market," said Howard Udis, a high-yield portfolio manager for Sunamerica Corp.
Commercial banks like Chase, Bankers Trust, and J.P. Morgan have been targeting the junk bond market as a natural complement to their lending franchises.
"The high-yield business is a logical extension of the businesses commercial banks are in," said William Kourakos, a managing director in high-yield capital markets at Morgan Stanley.
"The banks, particularly Chase Manhattan, have been capitalizing on the strategy they said they'd use," combining one-stop shopping and the strength of the overall market to bring high-yield deals, said Mr. Udis.
To be sure, Securities Data Co.'s rankings do not include private junk bond deals, known as 144A private placements. Experts said that at least half the current market volume was through such private placements. SDC estimates a total private placement volume of approximately $23 billion, while Morgan Stanley & Co. has the volume closer to $46 billion.
Nonetheless, the data suggest anecdotally that the junk bond market has been favorable for commercial banks.
Chase led eight deals and over $1.8 billion in junk bonds through the end of the third quarter, as compared with five deals and close to $860 million through the same period last year.
"The strengths we have in a number of capital raising functions around the world, in corporate finance and research, sales and trading, have a direct application to being a strong high-yield house," said John Gilbert, a vice president and head of the high-yield syndicate group at J.P. Morgan.
Mr. Gilbert attributed J.P. Morgan's growth this year to a sharper internal focus and an ability to provide a wide range of noninvestment grade companies with access to the market.
J.P. Morgan led five deals for a total of $935 million through the end of the third quarter. During the same period last year, the bank led two deals and $309 million.
The high-yield market has been robust this year, driven by mergers and acquisitions, a relatively strong economy, and sustainable inflation, Mr. Udis said.
Consistently among the lead managers of junk bonds, Donaldson Lufkin & Jenrette led the rankings with 21 deals in over $5.3 billion of assignments. Merrill Lynch & Co. and Goldman, Sachs & Co. took the second and third slots, respectively.
Salomon Brothers gained the most ground in the rankings through the first three quarters, rising to fourth from 10th.
Industry experts said the fourth quarter looked like it would have sustained new issue volume, particularly in the telecommunications sector.
"There's a decent amount of cash on the sidelines, and the cash coming into high-yield mutual funds will set a record this year," Mr. Udis said.
Additionally, experts point out that pension funds and other investment grade buyers are returning to the junk bond market.
"Barring any real change in the absolute level of interest rates, we will continue to see a pretty positive environment for new issuance," Mr. Kourakos said.
