Credit Agricole, France's second-largest bank, has joined the list of European banking companies looking to make investment banking inroads on Wall Street.
Its Credit Agricole Corporate and Investment Bank, formerly known as Calyon, is underwriting high-yield corporate debt for U.S. companies. Like Deutsche Bank, Barclays PLC and BNP Paribas, it has hired specialists from U.S. firms, and it is expected to apply to become a primary dealer for the Federal Reserve Board.
"Our goal is not to be just a European bank but a global bank," said Andy Schaeffer, the head of credit markets and origination for the Americas within Credit Agricole's corporate and investment banking group.
"Our goal is to be a Top 5 player across geographies," he said.
Schaeffer is based in New York. Before joining Credit Agricole in 2007, he was a managing director of capital markets at Bank of New York. The business of underwriting high-yield debt has been a big source of fee income for companies like Deutsche, Barclays, Bank of America Corp.'s Merrill Lynch unit, Credit Suisse and JPMorgan Chase & Co.
In the first three quarters of this year, Thomson Reuters reported, global syndicated lending grew 36% from a year earlier, to $1.3 trillion, with much of it happening in North and South America.
High-yield and high-grade debt financings climbed just more than 19%, to $1.2 trillion.
Tim Hall, Credit Agricole CIB's global head of debt markets and origination, joined the company in 2004 from ING Holdings NV to build up high-yield activity.
Hall said the plan for beefing up in the United States goes back at least three years. "The U.S. dollar buildout is not something we just cooked up. It was in the works before the financial crisis began, and we will continue to build out in the States according to our original plans."
This summer, the bank added five sales, trading, research and debt capital markets origination specialists to its debt credit markets business in New York.
They included Daniel Mena, a 24-year Wall Street veteran who was hired as a managing director and trader in the high-yield department. He previously headed institutional credit trading at Advisors Asset Management. Before that, he was a managing director and high-yield trader at Merrill Lynch.
Also this year, Credit Agricole hired Paul Brown, a former managing director at FBR Capital Markets, as a managing director of the debt capital markets team.
Howard Goldberg, who worked most recently at Jones Trading, was hired as a senior desk analyst with a focus on high-yield trading.
Credit Agricole, a bank founded in the late 19th century to serve farmers, has long-term debt ratings of AA-minus from Standard & Poor's and Fitch Inc.
Its officials would not say whether it hopes to become a primary dealer — a role that many companies like to take on, despite not being a big source of fee income.
The buildout involves more than selling debt for corporations.
"We are expanding our platform across multiple fronts," said Schaeffer. "These include high-grade, high-yield, emerging markets and, most recently, the asset-backed product, where we are now a Top 10 league-table participant."
In the third quarter, Credit Agricole underwrote $1.43 billion of asset-backed securities in the U.S., according to its internal data.
Market participants said that any company looking to make inroads in the United States would angle for primary dealer status because it gives dealmakers better insight into the credit markets, specifically Fed monetary policy.
Charles Geisst, a finance professor at Manhattan College, said that another participant would be welcome in the debt markets because another market maker could shore up liquidity.
"Investors think, the more the merrier, absolutely," he said. "Some banks are investing in high-yield because they have nowhere else to go. It's a quest for yield, given the Treasury. It's enticing for that reason alone."
The reduction in the number of primary dealers from nearly 40 in the mid-1990s to 18 today is proof that the U.S. market is not overly crowded, Geisst said.
The list was thinned out partially by the 2008 demise of Bear Stearns and Lehman Brothers, as well as by B of A's purchase of Merrill; most of the current primary dealers are foreign banking companies.
"More banks in the market means more primary broker-dealers, which is not a bad thing, although I don't know if you want that many foreign institutions assisting the Fed in monetary policy," Geisst said.
Investors probably would welcome any newcomers to the primary dealer list because they would help ensure that high-yield debt can be readily bought and sold.
Liquidity has dropped off in the credit markets since 2007 because companies are less willing to keep large inventories of securities on their balance sheets.
"It certainly can help" liquidity, said Mitchell Petersen, a professor of finance at Northwestern University's Kellogg School of Management.
"It's a case of too much supply at 9 a.m. and not enough at 3 p.m., or too much on Monday and not enough on Wednesday," Petersen said. "Someone has to warehouse the money, like it's a Wal-Mart building."
Jeff Given, a vice president and portfolio manager at John Hancock Mutual Funds in Boston, said European banks have a window of opportunity that did not exist three or four years ago.
"For one thing, the wider spreads allow them to make more capital investments in the United States," he said. "Capital has left the Street. Look at Lehman, Bear Stearns, Merrill Lynch."
Given also said that he is taking a wait-and-see approach on what might happen regarding the European banks' getting into the high-yield market. "Traditionally, European banks are the first to exit. What the market really needs is a group with more staying power."
Meanwhile, Credit Agricole's second-quarter profits rose 89% from a year earlier, to $522 million, exceeding analysts' estimates. The investment banking division's earnings helped offset a $573 million writedown its parent took in the quarter on its stake in Emporiki Bank of Greece SA.
The company has reshaped its investment banking business this year. In February it tossed out the Calyon brand — a product of Credit Agricole's 2004 merger with Credit Lyonnais — and began marketing its investment banking, equity brokerage, derivatives, fixed-income and structured finance businesses under its own brand name.
The fixed-income division includes six business lines: alternative products, commodities, debt and credit markets, interest rate derivatives, foreign exchange and a controls and operations unit.
Fixed-income research and credit research support the investment banking arm's trading and sales. The CIB unit handles electronic trading through its CA Cheuvreux division.
Though the French banking giant is looking to underwrite debt for U.S. issuers, it also hopes to court U.S. investors with debt offerings from European businesses.
In fact, a number of market players have structured debt financings to offer both U.S.-dollar and euro classes in order to attract a wider range of investors.
"In European high-grade, we've seen several waves of Yankee issuances this year, further supporting our view that a credible U.S.-dollar, high-grade platform is a prerequisite to better serve our European creditor-clients that also issue periodically in U.S. dollars," said Hall, Agricole's global debt markets chief. "For European high-yield issuers, reaching U.S. high-yield investors has traditionally been required for larger and/or more complex issues due to inadequate market depth in Europe."
Some observers wonder whether Wall Street is getting too crowded with European banks.
"Large, liquid European banks are in a pretty solid position, [and] the change in the regulatory environment brought on by Basel III bodes well for those who have access to markets," said Ron D'Vari, a co-founder and the CEO of NewOak Capital LLC in New York. "The smaller, less liquid banks are likely prospects for takeovers."
Hall, meanwhile, conceded that he has heard the overcrowding assertion before.
"I've been hearing a lot of this in the press and from other firms," he said. "However, our plans for a significant U.S. build were developed prior to the financial crisis, and we have been rolling the development out with increasing intensity over the last 18 months."
