| NEW YORK
NEW YORK Jan 6 Bank earnings from underwriting
leveraged loans sank to a four-year low in 2016, as a
fourth-quarter burst of refinancing deals that typically pay
lower fees than new loans followed three quarters of sluggish
business before the U.S. presidential election, according to
Freeman Consulting Services.
While total U.S. leveraged lending rose, fees shrank by a
"The market improved steadily throughout the year, and
borrowers that got a deal through in Q1 at a higher rate were
able to get back into the market and refinance later in the
year," said Jeff Nassof, a director at Freeman Consulting. "That
drives up the volume, but fees on refinancing deals tend to be
much smaller than for new-money transactions."
Leveraged loan fees paid to banks fell 12% in 2016 to about
$8.1 billion, the lowest since $7.5 billion in 2012, Freeman
Meanwhile, total leveraged lending rose by almost 12% last
year to $875 billion, according to Thomson Reuters LPC.
Refinancing accounted for roughly 47% of that issuance.
Leveraged buyouts are expected to accelerate this year, amid
investor optimism that the Trump administration will usher in
tax cuts and looser regulations, bankers and analysts have said.
Demand is growing for floating-rate assets, which will boost
new issuance and thus bank fee income.
Brendan Dillon, co-head of global leveraged finance, said
this year will be if not a record year, then a top two or three
year for leveraged buyouts.
"First quarter 2017 will be one of our best quarters ever at
UBS for leveraged finance," he said.
Fed policymakers are expecting President-elect Donald
Trump's vows of tax cuts, infrastructure spending and
deregulation to pose inflation risk, leading to faster rate
"There are a lot of open regulatory issues with the new
administration," with some seen as favorable for leveraged
lending, Nassof said.
Overall U.S. investment banking fees last year dropped the
most since the financial crisis, as market volatility sapped
merger and acquisition activity.
Fees on business including M&A advisory, equity and bond
underwriting as well as syndicated loan arrangement dropped 9%
in 2016 to a four-year low of $41.2 billion, after sliding by 2%
in the previous year, according to Freeman Consulting. This is
the biggest annual slump since a 36% plunge in 2008.
While dealmaking escalated in the fourth quarter, U.S. M&A
sank 17% for the full year to $1.7 trillion, Thomson Reuters
"Deals in 2016 tended to be very large corporate
acquisitions, while the middle market has been fairly quiet,"
said Nassof. "Smaller deals pay higher fees in percentage terms
than mega deals, and we think there's a good chance the M&A
market transitions toward middle-market deals that have a large
(Reporting By Lynn Adler; Editing by Christopher Mangham and