BANKS JOIN FORCES FOR NEW BOND PLATFORM.
Leading banks are joining forces to keep their collective grip firmly on the lucrative market for debt issuance. It has been reported that Goldman Sachs and Wells Fargo, BNP Paribas and Deutsche Bank have signed on to a new bond platform under development by the top three debt underwriters – Bank of America, Citigroup and JP Morgan.
Bank of America, Citi and JP Morgan have been working together for the past several months to enhance what is often a disjointed and labour-intensive process for sourcing pricing and other information to potential bond investors. The addition of the four new banks means that six of the top 10 debt underwriters are now involved in the consortium.
The platform will be used to announce new bond sales, communicate pricing information with investors, share credit ratings, prospectuses, and term sheets and other documentation, process investor orders and ultimately allocate bonds to would-be buyers.
Underwriting debt is a relatively stable source of billions in annual revenues that could come under threat from tech start-ups and financial data companies investing in the market.
In an interview with the Financial Times, Peter Aherne, the head of North American capital markets at Citi, said, “We get calls literally daily from other market participants seeking to be involved in this project. We have agreed it is far better for our technology to be on the desks of our clients than to have another provider’s.”
Financial institutions generated a record $23bn in fees underwriting debt last year, a high water mark spurred by low interest rates and a surge in borrowing by companies, according to data provider Dealogic.
However, their fortunes reversed in 2018 as fees slipped due to slowing debt sales and intensifying competition. The top 10 debt underwriters this year captured 48.6% of the commissions generated on bond sales, the second lowest level over the past nine years and down from 55.2% in 2010.
In an interview with the FT, executives at the three founding banks on the project said the new venture would be housed in a third-party entity and it would be owned by the financial institutions that use the platform. The exact ownership structure has not yet been decided.
This consortium is not alone in trying to tackle the cumbersome process tied to the initial sale of debt. Over 30 banks have signed on to a competing bond syndication platform from Ipreo, which was initially backed by 11 firms including Goldman and BNP, as well as HSBC, UBS and Societe Generale.