Bonds

JP Morgan Ousts Citigroup as Top Underwriter

Reuters
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Citigroup was dethroned as the world's largest underwriter of stocks and bonds for the first time in more than six years, as the global credit crunch hit Wall Street hard.

JPMorgan Chase was the top underwriter in the first quarter, the first time in 25 quarters that Citigroup did not rank first, Thomson Financial said Monday.

It was a dismal quarter for the industry, as underwriting volume plummeted 45 percent, including declines of more than 75 percent in issuance of U.S. asset-backed securities, mortgage debt and junk bonds. Reported fees fell 7 percent.

While Visa's initial public offering for a U.S. record $19.7 billion was a bright spot, many sectors showed steep declines, especially in fixed-income areas, where many investors have curtailed or stopped their buying.

"There was a total contraction in credit," said Richard Peterson, director of capital markets at Thomson. "We don't know if there are more hidden time-bombs. The market is sensing there could be more."

According to Thomson, underwriting volume fell to $1.27 trillion from $2.3 trillion a year earlier. JPMorgan arranged $129.4 billion of offerings, winning a 10.2 percent share.

Citigroup followed with $94.7 billion of offerings and a 7.5 percent share. Deutsche Bank AG was third, with $91.8 billion of offerings and a 7.2 percent share.

Reported fees fell to $3.38 billion from $3.65 billion. Citigroup led in that area with a 15.6 percent share, followed by Bank of America's 8.9 percent and Goldman Sachs Group's 7.8 percent. JPMorgan was fourth.

Bankers covet rankings in Thomson's underwriting "league tables" for marketing purposes and bragging rights. Thomson's parent, Thomson Corp, is expected in April to complete
its acquisition of Reuters Group.

JPMorgan was unavailable for immediate comment. Citigroup in a statement said it manages its business "for productivity and profitability rather than league table position."
   
Banks have written off more than $160 billion for debt and credit losses in the last several months, with tens of billions of further write-downs expected.

The U.S. Federal Reserve, meanwhile, has slashed interest rates and made it easier for lenders and investment banks to borrow in an attempt to bolster market liquidity.

"All the things that have taken place, in terms of the Fed cutting rates and providing various forms of financing, are all part of the solution," said Jim Merli, global head of debt syndicate at Lehman Brothers. "The only other thing we can do is give the market time."

Bear Stearns , a fixed-income specialist that agreed to a takeover by JPMorgan following liquidity problems, ranked 18th in underwriting and 23rd in reported fees.
   
Fixed-income bankers struggled as the credit crisis and housing slump caused steep drops in demand for subprime and below-prime "Alt-A" mortgages, collateralized debt obligations,
CDOs of CDOs, leveraged loans and other debt.

U.S. asset-backed volume sank 83 percent to $54.7 billion in the first quarter, while mortgage volume slid 78 percent to $61 billion. U.S. junk bond volume fell 85 percent to $5.9 billion, and the 13 issues were the fewest since the third quarter of 1991, Thomson said. Investment-grade bond issuance held up better, dropping 31 percent to $185.3 billion.

"In today's market, investors have more leverage with respect to price and covenant packages, said Tom Lewis, head of the U.S. investment-grade syndicate at Morgan Stanley.

Merger volume, meanwhile, fell 41 percent worldwide and 56 percent in the United States, Dealogic said last week, suggesting lower need for future bond and loan offerings.

While Lehman's Merli also characterized activity in some markets as "reasonable," he added: "There's not some magic wand that will change this environment."