Chase Securities Inc. is building up its European high-yield bond operation in anticipation of the European Monetary Union that goes into effect Jan. 1.
Calling the European leveraged bond market a "top priority," Bill Finnegan, a Chase managing director for global leveraged finance, said in the last year the bank has doubled the staff of its London-based junk-bond operation from about 10 to 20 professionals.
Chase executives also plan to open a second junk-bond office in Frankfurt within six to nine months, he said.
Market observers expect the monetary union to touch off huge growth in Europe's corporate bond market, which has traditionally been small and illiquid. The single currency is expected to open the floodgates to investment throughout Europe.
London, which has Europe's most liquid corporate-bond market, has long been its financial center. But with the United Kingdom opting out of the European Monetary Union, some observers say Frankfurt is poised to become a new center of European finance.
European business has tended to rely on bank debt, and bond investors have typically shunned lower-rated issuers. With profits from arbitrage between national bond markets vanishing, many European traders and investors are raising their risk profile.
Mr. Finnegan, who estimates the European leveraged bond market is similar to the U.S. market five years ago, said Europe will not take that long to catch up.
"The European market should develop quite rapidly," he said.
Mr. Finnegan said Chase can distinguish itself from some other large investment banks taking aim at Europe because it has strong relationships with institutional investors here and abroad. In the U.S. junk-bond market, Chase ranked sixth among lead underwriters, with 6.5% of the pie in the second quarter. "Unless you are a leading player in the U.S. market, your ability to deliver cutting-edge technology to European issuers will be impaired," he said.
Chase ranked third in European high-yield issuance sold in the U.S. market last year, with four deals totaling $588 million, according to Securities Data. Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co. ranked first and second, respectively.
So far this year Chase again ranks third, behind Goldman Sachs & Co. and J.P. Morgan & Co.