| NEW YORK
NEW YORK Oct 6 Bank fees earned by underwriting
U.S. leveraged loans sank in the first nine months to a
four-year low, down sharply from the same period last year, as
lenders arranged fewer of the most profitable deals.
The $5.24 billion of fees banks made on leveraged lending
fell 27 percent from the same three quarters last year to the
lowest level since $4.73 billion in 2012, according to Freeman
"When you look at fees for arranging leveraged loans, as
opposed to loan volumes, the market looks even worse," said Jeff
Nassof, a director at Freeman Consulting. "The most lucrative
deals for banks arranging loans are the ones that are the most
Leveraged lending fell 11 percent to about $555 billion in
the first nine months of the year, according to Thomson Reuters
Banks typically arrange profitable financings used when
sponsors undertake leveraged buyouts (LBOs), but many private
equity firms have lost out to cash-rich corporate buyers this
"LBO loans tend to pay arrangers the highest fees, but
sponsors are now being beaten for deals by large corporates,"
Nassof said. "The corporates are relatively well-positioned to
outbid sponsors via share-based bids, or using investment-grade
Credit Suisse, Deutsche Bank, Barclays and UBS are more
reliant on sponsors for leveraged finance fees in the United
States than their American counterparts, according to Freeman
Although deal announcements picked up in September as some
borrowers attempt to push transactions through before the U.S.
elections and possible December Federal Reserve rate hike,
leveraged lending overall has declined.
In addition to the elections, Fed policy, economic
uncertainties and competition from cash-heavy corporations,
leveraged buyouts continue to be curbed as regulators enforce
lending guidelines designed to limit the amount of debt in those
Fee income has been hit by waves of volatility throughout
the year as macroeconomic and political considerations dominated
the loan market and wider capital markets.
The second quarter this year was the busiest for new
lending, after a first quarter dogged by recession fears,
sliding oil prices, and a backlog of large deals stalled by
market turbulence that reared up in late 2015.
In the third quarter, fees of $1.84 billion were 38 percent
lower than the same period last year and were the lowest for any
third quarter since 2012.
Overall U.S. investment banking fee income so far this year
has also slid, Freeman Consulting data shows, as the merger
mania that prevailed last year faded.
The $29.6 billion in total feels, which include mergers and
acquisition (M&A) advisory feels, equity and bond underwriting
fees as well as syndicated loan arranging fees, was the lowest
since the same nine months four years ago.
"The M&A backlog is still fairly strong, but new deal
announcements are down, and should be quiet through the
elections," Nassof said.
Companies have become wary of overpaying for M&A deals, with
the stock market hovering around record highs and the S&P 500
Index's price-to-earnings ratio around its highest level since
the 2008 financial crisis, Reuters reported last Friday.
(Reporting By Lynn Adler; editing by Tessa Walsh and Michelle