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Big banks losing dominance in key area of fixed income

Corporate bond underwriting is one of the few flourishing businesses in fixed income. The only problem for big banks is that, unlike in years past, bond underwriting is no longer their own personal sandbox. Smaller players keep showing up uninvited.

This year, the top five banks in U.S. corporate bond sales – J.P. Morgan, Bank of America, Citigroup, Goldman Sachs and Barclays –have combined to win the smallest market share in any comparable timeframe, according to Bloomberg. At 47%, the top earners still own the lion’s share, but that’s down from 59% in 2009, and it’s likely to keep dropping. Nearly 150 underwriters are now in the business.

If that weren’t enough, margins are also falling. Junk-bond underwriting fees, which pay the most, stand at record lows, according to Bloomberg. Fees at the top banks are down 6% despite volumes only falling 2.5%.

The news stands as a kick to the gut for fixed income businesses that are already reeling at top U.S. banks. FICC trading revenue may fall as much as 20% this quarter at the likes of Citi, J.P. Morgan and Goldman Sachs.

Interesting, Goldman President Gary Cohn made an argument last week that the bank is actually gaining market share in fixed income trading, though "it's tough to see." His argument is that Goldman is winning more higher-margin trades than competitors. So, when volatility returns, Goldman’s revenues should increase at a faster pace, or so goes his theory.

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Want to work for a boutique investment banking firm? Now’s the time. Boutiques are thriving, particularly M&A-focused Moelis & Co. and Greenhill & Co. Here’s what you need to know before applying to either firm.

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Here’s a list of the highest-paid back office jobs globally. Sadly, only one opening resides in New York.

Icahn and Lefty (WSJ)

Billionaire investor Carl Icahn, famed gambler Billy Walters and PGA golfer Phil Mickelson are being investigated for insider trading. News of the investigation may hinder its success as the government has lost the element of surprise. Secret wiretaps are critical to convictions.

People Moves (Bloomberg)

Goldman Sachs has named Stephen Scherr as its new chief strategy officer. Scherr is replacing Andrew Chisholm, who’s retiring after three decades with the bank. Elsewhere, UBS Global Chief Investment Officer Alexander Friedman is stepping down, and Chris Levett is returning to Moore Capital Management.

KKR Exits Hedge Fund Industry (Reuters)

KKR has confirmed that it is shuttering its three-year-old hedge fund unit formed by ex-Goldman Sachs prop traders, led by Bob Howard. KKR will say goodbye to roughly a dozen staffers as it liquidates the fund.

You’re Fired (BBW)

J.P. Morgan is the second bank to be fired by meat producer JBS for partnering with rival Tyson Foods in a bidding war. Banks have never really been loyal throughout all parts of their businesses, but JBS doesn’t seem to care.

It Pays to Be Here (FT)

The average banking chief executive earned a 10% pay raise last year, but not all compensation was equal. CEOs at the six largest U.S. banks ranked among the seven best-paid bosses.

Buzz Around the Office

Only $27.5 Million Per Bedroom (Bloomberg)

The penthouse apartment atop the famed Woolworth Building in Manhattan is priced at a record $110 million. The apartment spans nine stories yet houses only four bedrooms. Surely there’s enough room for a pullout sofa or two.

Quote of the Day: “While I have obviously heard of Phil Mickelson, I have never spoken to him or met him.” – Carl Ichan

AUTHORBeecher Tuttle US Editor

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