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Opinion

The death of DCM?

The heyday of the traditional debt capital markets is long gone. Who would have thought that, some six months into the year, it would have taken just a $6 billion share of underwriting to take top place in the US investment-grade corporate bookrunner table? Go back to 2004 and it would have been something like $10 billion. Perhaps a bigger surprise is that this number trails behind the equivalent European league table (€8.5 billion).

The corporate investment grade market has been a great disappointment. The boom was a two-year phenomenon that ended in 2001 – by volumes the market is back to its 1999 levels. With volumes buoyed up by the M&A boom, banks ramped up their capabilities, expecting increased disintermediation of credit risk. However, the world has regressed. No one considered that the loan market’s efficiency would last for so long.

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The US market is still far more profitable than Europe’s, and not just because US issuers are less aggressive when it comes to cutting fees and syndicates are smaller.

And pity the pain felt by the traditional monoline investment banks in Europe; unless they play a particularly smart or expensive game they get zero corporate bond business. Is it any wonder that corporate treasurers are overwhelmed with documents pitching hybrid capital transactions? Or that every bank now has an asset and liability management team trying to create pensions solutions? But how much business does all this marketing actually yield?

As a rule in the debt capital markets arena, fees are falling; where they are not, issuers are demanding more services [see this month’s feature on sovereign debt managers] or they are asking for direct subsidies, as is very common in the financial institutions business.


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