Despite a promising outlook for high-yield debt sales, underwriting fees are slumping in the face of stiff competition among investment banks.
"We've gone to market four times in the past six years and each time we've paid less,'' Scott Morrison, treasurer of beverage-can maker Ball Corp., told Bloomberg. "The banks are ultra-competitive against each other.''
Currently, companies are paying underwriting fees of about 1.5 percent, down from roughly 1.8 percent in 2005 and 2.1 percent in 2003, Bloomberg says. At that level, underwriting revenue would drop by 16 percent even if junk-bond sales pass 2004's record $135.8 billion.
As a result, investment banks are setting their sites on areas of business that can provide bigger payoffs. Goldman Sachs is spending more on trading, while Merrill Lynch is becoming more active in mortgage bonds and collateralized debt obligations, which pay higher underwriting fees.