Smith Barney Inc. may make money the old-fashioned way, but its new lending operation will make loans the leveraged way.
Taking its first step toward building a syndicated loan business last March, the investment banking and brokerage arm of the Travelers Group hired Natwest Markets' Glenn Marchak to build a lending group.
Although still building the operation, Mr. Marchak, a managing director and head of the loan product group, has a clear vision of where lending fits under Smith Barney's umbrella.
"We're not going to be all things to all people. We will be focused on our customer base. We're not trying to make a lot of loans for loans' sake; we're trying to use it strategically as a product," he said in an interview.
"We will be a small, flexible shop, and you're not going to see team A come out and pitch you and end up with team C doing the deal for you," added Mr. Marchak, 41.
The new group will work in leveraged lending and distressed-debt trading and will support the firm's high-yield business.
One of the last of the large investment banks to enter the lending business, Smith Barney has joined the ranks of firms such as Merrill Lynch & Co. and Goldman, Sachs & Co. that have already added loans to their one- stop shopping menus of corporate finance capabilities. "If you want to be in the debt business, in the noninvestment-grade arena, you need to be able to offer the full menu of products and commit capital because everybody in the business does it these days," Mr. Marchak said.
Smith Barney already has the rest of its capital markets capabilities in place: It ranked 14th among issuers of high-yield bonds for the first half of the year, raising $1.83 billion in 10 issues. It also ranked 10th among merger and acquisition advisers, and eighth among issuers of equity, according to Securities Data Co.
In partnership with Bank of Nova Scotia, the firm is now raising capital for an expected $1 billion fund to do bridge lending. Each institution has already put in $200 million. The fund and the firm's ties to key buyout groups managed through its financial entrepreneurs group should give it a strong foothold in the leveraged market.
"There are a tremendous number of equity sponsors with a tremendous amount of capital sitting on the sidelines because equity values are too high," said Mr. Marchak.
