Changing of the guard

While the loan market has picked itself up from the canvass at the start of the year, volumes remain muted. Many of the former behemoths in the business are loathe to compete as they once did. But while the bond market has filled much of the void, some banks have also capitalised on the opportunity to make unexpected appearances in the top 10, as David Cox reports.

Global syndicated lending slumped in the first half of the year, with year-on-year volumes down by around 35%. With activity declining across all regions, the global syndicated loan market has not been this quiet since 1999.

The first half figures show that even as market tone has improved as the year has progressed, volumes remain light at best. The depressed picture contrasts with a booming international bond market, where volumes have surged across the first half as corporates focused their efforts away from a difficult loan space. The upshot of this is that the international bond market is now more than twice the size of the bank market.

JP Morgan has retained its dominance on top of the global table aided by its leadership position in the US, which remains by far the world's largest market.

In terms of regional markets, the banks that dominated activity prior to the credit crunch are now not necessarily as keen to extend credit as they once were. Many now focus on their home markets. With some banks emerging from the credit crunch in significantly better health than others, this is having a significant impact on league tables and is creating opportunities for new players to establish themselves.

In Europe, Santander is one such example. Its appearance in the European top 10 could herald the arrival of a new force in European lending. Historically a second tier player, it is a liquid lender in a relatively illiquid market, allowing the Spanish bank to quickly pick up market share.

Among the long term top tier arrangers, RBS has slipped to number two behind BNP Paribas after dominating the top spot since 2003. French banks in general appear to be having a good crisis, with Paribas, Calyon and SG all improving their showing in the European league table compared with recent year end spots.

The US banks look to be the established players that have seen their grip on the European market most severely weakened. After long being a strong top five player, Citigroup has fallen considerably down the rankings to number 10. JP Morgan fell outside of the top 10 altogether to number 16.

In the US, the market remains dominated by the triumvirate of JP Morgan, Bank of America and Citigroup. Lower down the table, RBS looks like a particular loser falling out of the top 10 to number 16. After its acquisition of the US business of Lehman Brothers, Barclays has benefited with a strong top 10 position.

With the credit crunch perhaps impacting Asia less than other regions, the league tables too offer more continuity than in Europe or the US. Japanese banks retain their positions at the top followed by an assortment of mainly Asian lenders. Among international banks, Citigroup has managed to defend its franchise and remains a top tier play. Less fortunate is RBS, which has crashed out of the 10 to a lowly 23 spot.

Despite the seemingly depressing picture painted by hugely deflated volumes, there are some reasons for cautious optimism. Sentiment going into the second half is a world away from the start of the year when lenders were still in survival mode. Now, with lenders' balance sheets stabilised, competitive tension is returning to the market. Corporates report banks are once again looking to compete on pricing and tenors.

The fall in volumes does not mean the year has been without notable transactions. The healthcare sector in particular has been active: Pfizer and Merck put in place respective US$22.5bn and US$8.5bn loans, both of which were both syndicated. However, these two event linked loans were rarities in a year where tough economic conditions saw corporates step away from debt funded expansion. And with banks loath to take on new term debt, it has principally acted as a broker to longer term capital markets through unsyndicated club loans. Typical here were RWE and Vattenfall, which both put in place unsyndicated club loans that bridged to the capital market.

This is not to say the loan market has been closed to medium term funding. A series of successful syndications for borrowers – including most recently Cadbury and Linde – show the market is still open for refinancings. The credit crunch has also brought innovation in the shape of forward starts, effectively loans with delayed drawdowns that help borrowers hold together shaky syndicates. This technique first found use in the UK market before spreading out into Europe and beyond. While the market remains difficult bankers expect forward starts to stay a feature of the market.