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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