Syndicated lending got off to a healthy start this year but dipped below the record levels of late 2004 as repricings and refinancings dropped off.
The four largest banks maintained their top rankings in the United States during the first quarter. Citigroup Inc., Bank of America Corp., and several Wall Street investment banks inched up in market share, partly at the expense of the leader, JPMorgan Chase & Co.
Deutsche Bank AG, Goldman Sachs & Co., and Lehman Brothers all gained ground.
"The market had a very good first quarter," said Glenn Stewart, the head of the syndicate desk for syndicated finance at Banc of America Securities, the Charlotte company's corporate banking division. "There was enough new business to keep people busy."
The number of deals fell as refinancing fell, but strong interest from hedge funds, institutional investors, and other investors has kept competition intense and prices down. "There's still a disequilibrium between investor demand and deal flow," Mr. Stewart said.
There were 564 deals during the period, 23% fewer than a year earlier and 39% fewer than the fourth quarter, according to data compiled by Thomson Financial as of March 29. (Numbers for the full quarter were not available at press time.)
Borrowing for buyouts and mergers meant the average loan amount was higher, and helped raise volume to $218 billion. That was 5.4% more than a year earlier but 43% less than the fourth-quarter volume, according to Thomson.
Spreads continue to narrow in the syndicated market, according to Loan Pricing Corp., a Reuters division. Spreads on some BB-rated loans to nonbank investors, for example, fell to 165 basis points above the London interbank offered rate in the first quarter, versus 245 basis points a year earlier .
Rising interest rates are contributing to continued strength in demand for leveraged loans.
Mr. Stewart said that because these loans carry variable interest rates, they are popular with certain investors. "If you're concerned about rising interest rates, you want to be in the floating-rate market," he said.
Most of the growth came from loans to investment-grade borrowers. These loans rose 28% from a year earlier, to $110 billion, according to Loan Pricing.
And institutional lending, or loans sold to nonbank investors, rose 31%, to $55 billion, according to Loan Pricing.
Leveraged lending was $107 billion, 24% more than a year earlier but 21% less than the fourth-quarter tally amid a decline in repricings.
Julie Bouhuys, the head of credit products at Wachovia Securities, the corporate banking unit of Wachovia Corp., said market conditions "are still extremely favorable" in the leveraged market, "but there's a limit to how many deals you can refinance. Rates have stopped going down, so there's a bit of a ceiling."
Bankers suggested that JPMorgan Chase's ongoing integration of the former Bank One Corp., which it bought last summer, may be one reason it is losing market share.
A JPMorgan Chase spokesman called the first-quarter figures "a temporary phenomenon based on the timing of what deals came to market." "The JPMorgan Chase view is that 2005 should be a strong year given how credit quality is very good and there does seem to be a very good demand," he said.
The company's U.S. market share fell to 27.6% during the quarter, from 31.1% a year earlier, according to Thomson. By contrast, Citigroup, which held the third spot, went from 11.8% to 14.3%.
JPMorgan Chase also retained its lead in the global syndicated lending league table, completing 158 deals worth $72 billion, for a market share of 14.5%, according to preliminary first-quarter data from Thomson Financial, also dated March 29.
