Some of the most prominent leveraged lenders of the late 1990s - largely investment bank newcomers that wrested market share and talent away from established commercial banking competitors - are now getting a taste of their own medicine.

Donaldson, Lufkin & Jenrette and Lehman Brothers, the two securities firms that led the charge of investment banks eager to cross-sell corporate loans with other debt products, have dropped significantly in the U.S. leveraged lending league tables in recent quarters. Executives from both firms have been jumping ship to competitors.

UBS Warburg, the investment banking unit of Swiss banking company UBS AG, is one firm that is aiming to take advantage of the new competitive mix. UBS has lured 10 leveraged finance and syndicated lending executives from Lehman since late last year. It has been building its loan operations for the past eight months. It also recently broke ground on an expansion of its trading floor in Stamford, Conn. When completed it will be the largest private trading floor in the world, the firm said.

A decline in demand for leveraged loans has intensified the competition. In 1998 proceeds from U.S. leveraged loans were $330 billion. Last year proceeds rose 22%, to $401 billion. This year the industry is on pace for proceeds of $354 billion, a decline of 12%.

"When markets are hot and people are making money, that masks a lot of ills," said Art Penn, global head of leveraged finance at UBS Warburg. "We think there's a wonderful opportunity to gain mind share and market share at this point in time, exactly because the market is not as hot as it used to be."

To be sure, Bank of America Corp., Chase Manhattan Corp., and Deutsche Bank AG still dominate the loan charts, combining to take half the U.S. leveraged loan market share for the first half of 2000. The fight for market share is below that top tier. Citigroup's Salomon Smith Barney unit lead $10.7 billion in leveraged loans for a 6% market share for the first half of this year, putting it in fourth place. That's up from sixth place for all of last year, with a 3.3% market share, and ninth place in 1998, with a 3.4% share.

For DLJ, times have definitely changed. The firm was named International Financing Review's U.S. Leveraged Loan House of the Year in 1998, when it led $9.7 billion in deals, claimed a 2.9% market share, and ranked 10th in the leveraged loan league tables, according to Thomson Financial Securities Data. In 1999, its market share slipped to 2.5%.

In the first half of this year, DLJ led $2.2 billion in deals for a 1.2% market share and 13th place, and most recently, in the second quarter, DLJ lead just $645 million in leveraged loans for a 0.8% market share and ranked 20th. The firm would not comment for this story.

DLJ this year had several executive changes in high yield bank debt and fixed income, two closely related businesses.

Among them were Andrew Nathanson, the former co-head of leveraged finance who went to private equity investment group Oak Hill Capital Partners. "It's been an extremely tight, extremely aggressive labor market," said Dean Eberling, an equity analyst at Keefe, Bruyette & Woods Inc. "When you're at the top of the heap, everybody wants to pick away at you."

Most recently DLJ lost Steve Hickey, co-head of loans and one of the three founders of its loan group, to his former employer Goldman Sachs & Co. Goldman lead $3.7 billion in leveraged loans in the first half of 2000 for a 2.1% market share and 12th ranking. Mr. Hickey resigned last month and will start at Goldman in the fall.

DLJ, one of the most prominent junk bond underwriters, has also been tainted by a bad bond deal with Ameriserve Food Distribution Inc. DLJ is reportedly accused of failing to properly disclose Ameriserve's financial troubles when it sold $200 million in Ameriserve junk bonds in Sept. 1999.

Lehman has similarly deteriorated in leveraged lending. In 1998 it led $14.6 billion in leveraged loan deals, claiming a 4.4% market share and seventh place in the rankings. It was the highest-ranked firm that was not a commercial bank. In 1999 it led $8.6 billion and had a 2.1% market share for a 12th ranked spot. So far in 2000, the firm has lead $1.5 billion in deals, for a 0.9% market share and 17th place.

Lehman lost star Chris Ryan, head of loan sales and trading, to UBS Warburg late last year. Along with Mr. Ryan, who is global head of syndicated lending at UBS, came David Juge, managing director and head of loan syndication, and several others.

Mr. Ryan said UBS Warburg is concentrating on dedicating capital to its trading organization, gaining a reputation in the industry, and improving internal communication. "The bank is patient and wants to be a long-term winner, not a flash in the pan," he said in an interview.

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