Secondary loan trading appeared to hit stride in 1996 as volume kept growing and a number of commercial and investment banks opened up operations.
By Sept. 30 bankers had traded more than $27.2 billion of loans, 12.7% more than in the first nine months of 1995, according to the most recent data from Loan Pricing Corp.
And the market shows little sign of slowing. Credit Suisse First Boston and Mitsubishi Trust are set to launch par trading desks by mid-January.
Long an important part of the public bond market, trading operations have become common for loan syndication shops only in the last decade. Some say the intense interest in creating trading groups underscores the loan market's development.
"The maturation of the secondary market confirms the continued convergence of the public and private debt markets," said Walter Bloomenthal, a managing director and head of loan trading at BA Securities, BankAmerica's investment banking subsidiary.
Mr. Bloomenthal pointed to more volume, more players, and tighter bid- ask spreads as evidence of the market's maturing.
Creating a bank loan trading desk is an "investment in better managing the bank's liquidity and balance sheet," said Bruce Ling, head of loan syndications at Credit Suisse.
"We believe that the secondary loan trading volume will continue to grow in the double digits for some time," said Patricia Loret de Mola, a senior vice president and assistant general manager at Mitsubishi Trust. "Any major player in the leveraged loan market will have to take a look at it."
The Loan Syndication and Trading Association, which is trying to standardize loan trading documentation, expects to double its institutional membership in the next year, from the current 55.
However, some bankers have doubts about the secondary market.
"We're running into problems with secondary loan trading in two areas," said Joseph P. Rizzi, a senior vice president and managing director in structured finance at ABN Amro. "We feel that customers look at revolvers differently than a normal security because they want to know who's holding the loan."
Selling down a loan also affects a branch's profitability, which can cause internal rifts, he added.
But Mr. Bloomenthal said his bank participated in this market for several reasons: information flow, supporting primary underwriting, and satisfying customer demand while making a profit. He added that, while the increasingly crowded field makes it harder to earn a profit, the market remains attractive.
"The good news is that the market is more liquid," he said, "but the bad news is that, as the markets mature and get more orderly, there are less profits per trade."
The BankAmerica executive said his group made "several million dollars- plus" and added that "this is not a hobby at all for us."
For other banks like Mitsubishi Trust, however, the market is less about making a profit than about getting information on the loan market and using access to loan buyers.
"If we can also make money," said Ms. de Mola, "so much the better."