U.S. syndicated lending picked up steam in the third quarter and rose sharply in the first nine months of the year, nearly matching the total for all of last year, when the industry was in a slump.
Third-quarter syndicated loans rose 41% from a year earlier, to $300 billion, according to Thomson Financial Services of New York. For the first nine months U.S. syndicated loans rose 31%, to $954 billion, just shy of 2003's total of $984 billion, according to data from Thomson Financial, a division of the company that owns American Banker.
Bankers and analysts said a major factor in the rebound was a revival of merger and acquisition activity, which has boosted demand for deal financing, including both investment-grade and leveraged loans. (The value of M&A deals announced during the first three quarters rose 67% from the same period last year, to $568 billion, according to Thomson Financial.)
"I think the key has been the relationship between merger volume and lending. They move in concert," Richard Peterson, the chief market strategist at Thomson Financial, said in an interview Monday.
The top three U.S. syndicated loan book-runners during the first nine months of the year were the same as a year earlier, and in the same order. J.P. Morgan Chase & Co. led the rankings, with $315 billion of loans. Bank of America Corp. was second, at $204 billion, followed by Citigroup Inc., with $150 billion.
But JPMorgan Chase and B of A continued to lose market share to smaller banks, despite giant acquisitions by both in recent months. (JPMorgan Chase bought Bank One Corp. on July 1; B of A bought FleetBoston Financial Corp. on April 1.) JPMorgan Chase's market share during the first nine months of the year fell 2.1 percentage points, to 33%. B of A's share fell 0.8 percentage points, to 21.4%. Citi's share rose 0.9 percentage points, to 15.7%.
Market share eroded for all three companies in the third quarter. JPMorgan Chase's third-quarter share fell over 5 percentage points, to 31%, while B of A's fell 1.1 percentage points, to 21.1%, and Citi's fell over 4 percentage points, to 11.9%.
Wachovia Corp., which has been investing heavily in its capital markets businesses over the past two years, was the biggest gainer during the first nine months. The Charlotte company leapfrogged Deutsche Bank AG into the No. 4 spot, with $51 billion of syndicated loans. Its market share rose 2.2 percentage points from the first nine months of last year, to 5.3%. Deutsche was No. 5, with $30 billion of loans and a 3.1% share.
For the third quarter alone, Wachovia's share rose 2.3 percentage points, to 6.9%, while Deutsche's rose 0.3 percentage points, to 3.3%.
Since the end of last year Wachovia has hired about 100 bankers in its credit operations to build market share across its capital markets businesses, particularly in leveraged lending and acquisition finance.
"We are making a very deliberate investment in our credit businesses," said Ben Williams, a managing director and the head of global capital markets in Wachovia's corporate and investment banking division.
Most of the fees in investment-grade and leveraged finance now go to the three "universal banks" - JPMorgan Chase, B of A, and Citi - but Wachovia aims to close the gap, he said. "There isn't any reason we shouldn't be one of the top five players. If you look at the market share gap, there is substantial room for us to grow this business."
As part of its growth efforts, Wachovia appointed Eric Lloyd and Elton Vogel last month as the co-heads of leveraged finance origination. Mr. Lloyd, 36, is a managing director and the former head of Wachovia's loan syndications group. Mr. Vogel, 37, was hired away from B of A, where he had been the head of leveraged acquisition finance and restructuring advisory.
Mr. Lloyd cited Wachovia's advances in the business when his appointment was announced Sept. 23. "We have generated significant growth in loan syndications over the past year and will continue to focus on growth in our high yield business as we integrate our high yield and loan syndication businesses," he said in a press release.
