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Why a French Bank Would Expand in U.S. High-Yield Bond Sales Now

The world’s biggest banks are pouncing on one of the only bright spots in their fixed-income businesses: helping junk-rated companies sell bonds.

Case in point is Credit Agricole SA (ACA), which is boosting its U.S. high-yield debt unit by hiring Michael Stiuso, Cindy Cash and Justin Brody in the last several months. The lender has risen to become 12th most-active manager of the debt sales this year, its highest rank ever, up from 17th place in 2013, according to data compiled by Bloomberg.

“We have made a conscious decision to develop further our New York sales presence across asset classes, with a focus on U.S. high yield,” Tim Hall, Credit Agricole’s global head of debt capital markets, said in an e-mail. The firm “has made it clear that it is a debt-centric house.”

Credit Agricole isn’t alone in amping up its fight for junk-bond underwriting assignments. The fierce competition has led average fees for underwriting the debt to drop to 1.27 percent, the lowest ever, from 2 percent in 2009, according to Bloomberg data. Fees have dwindled even with the debt being issued at a record pace this year.

Of course, the debt-underwriting party may not go on forever, especially in a market where buyers are starting to push back. Investors withdrew $4.77 billion from high-yield bond funds in the week ended July 23, the most in 55 weeks, according to EPFR Global. The debt has lost value this month for the first time since last August, and companies sold the least amount of U.S. high-yield bonds since February.

Grabbing Business

So, why get in now? Well, dealers see few other options to boost revenue from their debt units. Volatility is low, yields are a fraction of their historic averages, and investors seem happy enough just holding onto their bonds instead of trying to trade in and out of them.

There are also some financial institutions that are scaling back in investment banking, like UBS AG (UBSN) and Royal Bank of Scotland Group Plc, so their competitors see an opening. Credit Agricole joins Nomura Holdings Inc. (8604) and Deutsche Bank AG in trying to take advantage of such retrenchment by hiring for their U.S. credit units.

The French lender has won 2.1 percent of U.S. junk-bond underwriting assignments this year, up from 1.2 percent in 2013, Bloomberg data show.

The debt-sales conveyor belt is still rolling, delivering about $2.9 billion in fees to U.S. junk-bond underwriters so far this year, based on data compiled by Bloomberg. All things considered, investors are still hungry for the extra yield the notes offer, and banks are eager to give them what they want.

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Caroline Salas Gage, Mitchell Martin

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