U.S. banks took over the market in European high-yield corporate bonds in the first quarter, led by Citigroup Inc.'s Salomon Smith Barney.
Salomon attributed its coup to efforts to build up its Europe-based investment banking staff and a windfall of large telecommunications deals.
Though the high-yield corporate Eurobond market is still relatively small - junk bond issuance was twice as high during the period in the United States - until recently Salomon was just a minor player. A year earlier it ranked 18th.
Other U.S. banking companies recorded similar success in the latest quarter. Goldman Sachs & Co. jumped to second place, from 22d; Morgan Stanley Dean Witter & Co. to third, from seventh; and Lehman Brothers to fourth, from 16th.
Observers noted that U.S. banking companies have been able to successfully export their expertise in the junk bond market to Europe, where $6 billion worth of new issues came out during the first quarter, up from $5.4 billion a year earlier. European banks, meanwhile, have slipped in the rankings as U.S. counterparts are more aggressive in courting business on the Continent.
Salomon executives attributed the gain this year to improved cross-selling efforts following the 1998 merger of Citicorp and Travelers Group. Over the last year Salomon, like other U.S. investment banks, has been expanding its European staff. In high-yield capital markets, a two-person group has grown to 12, and the company has had an equal build-up of investment bankers.
Citigroup's pending acquisition of London-based Schroders PLC should also add more industry-focused investment bankers who bring in contacts that translate to underwriting and other business, said Steven Jones, global head of high-yield capital markets at Salomon.
Salomon's building efforts also paid off in the considerably larger U.S. junk bond market, where it jumped ahead of rival Donaldson Lufkin & Jenrette Inc. as the biggest issuer of U.S. junk bonds during the first quarter, according to the latest rankings by Thomson Financial Securities Data.
Salomon's market share in the U.S. junk corporate bond market rose to nearly 20% from a year earlier, when it ranked second, with 15.1%, according to Thomson Financial Securities Data.
U.S. high-yield issuers continued to shy away from the market in the first quarter, bringing $16 billion in new deals, or 40% less than a year earlier. The market suffered from higher interest rates and a lack of funds as more investors put their money in the high-flying equities market. Indeed, Salomon's lead-managed volume dropped 22%, to $3.2 billion.
In Europe, Salomon underwrote 12 new issues, worth a total of $955 million, which accounted for a 12.5% share of the market. Its European position was aided by a few large telecom deals that also tapped European investors. For example, a $2 billion deal for Broomfield, Colo.-based Level 3 Communications, which is building a global fiber-optic network, had a $1.4 billion European tranche, for instance.
Salomon also led a $2 billion deal for New York-based WinStar Communications, which also had a European tranche.
But one London-based portfolio manager questioned whether Salomon had really entered the top tier, despite its underwriting record. "They've done more issuance. I don't think they've done up in people's minds in terms of service and trading," he said. "A lot of investors and issuers are not happy about the pricing on some of their issues."
The Level 3 deal, for instance, traded above par, at a price of 103, when it opened, and has since dropped to 95.
Disfavor with the European tranches stems partly from the fact that many European investors, while eager to invest in high-yield issues, would rather buy the debt of a company that is based or has significant operations in the region - a predilection some U.S. issuers have not understood when they came to the European market, said the manager.
In the United States, three investment banks continued to dominate junk bond issuance. DLJ, in second place, lead 18.7% of all U.S. junk bond origination, or $3 billion. Goldman Sachs was close behind, with a 17.8% market share, underwriting $2.9 billion in new issues. Morgan Stanley Dean Witter - ranked fifth for all of 1999 - also crept up a few notches, taking fourth place and a 13% share of the market.
The most startling decline was made by Chase Manhattan Corp., which had broken into the top tier of underwriters last year by taking in fourth place in the United States. In the first quarter it took a slim 0.3% of the U.S. market, dropping to No. 15 this year.
Chase had a better quarter in loan syndications, leading the ranks with a 39.9% market share and $74 billion in new issues. This was 7% lower than its lead-managed volume in the same quarter last year, but its market share rose 17%.
Salomon Smith Barney leapfrogged into second place, taking a 11.7 % market share, with leads on $21 billion in loans. A year earlier it ranked fourth in loan syndication, with an 8% share of the market.
Salomon's rise pushed Bank of America Corp., which usually vies for first place with Chase, into third place. Bank of America had a market share of 9.1% - a whopping 50% less than a year earlier.
Overall syndicated loan issuance was down 9% year-over-year.
Still, Peter Gleysteen, head of worldwide loan syndications for Chase, said an active first quarter, generally a slow time of year for the loan market, spells good news for the rest of the year. As in the first quarter, "demand for debt capital will be strongly dominated by corporate M&A and telecom build-outs," Mr. Gleysteen said.