Barclays Capital and J.P. Morgan emerged from a year of historic crisis as the leaders in U.S. fixed-income trading as a host of regional and foreign dealers capitalized on bulge bracket disruptions to build new ties with U.S. institutions.
Barclays Capital and J.P. Morgan each weathered breakdowns in credit markets, chaos in the financial services industry and the challenge of integrating newly acquired fixed-income platforms to claim the title of co-leaders in U.S. fixed-income in terms of both market share insecondary trading and overall franchise quality in the Greenwich Associates 2009 U.S. Fixed-Income Investors Study. In addition, Barclays Capital notched the biggest improvement in client ratings of relationship strength from 2008 to 2009 despite the challenging Lehman Brothers integration.
“The success of Barclays Capital over the past 12 months is particularly impressive given the timing of their acquisition of the Lehman Brothers business and scope of the integration it required,” says Greenwich Associates consultant Frank Feenstra. “Also worthy of note has beenCitigroup’s dramatic expansion of its market share and the significant gains made by Deutsche Bank and Credit Suisse.”
Greenwich Associates consultant Tim Sangston says the past year has brought more change to U.S. fixed-income than any 12-month period in the 37 years that Greenwich Associates has been covering this market. “In addition to the demise of several storied firms,” he says, “our researchshows that the crisis has altered – in some cases dramatically – the way institutions interact with their fixed-income dealers. The firms that managed to best navigate these storms have been reaping the rewards so far in 2009 in the form of strong performance in FICC.”
For the first time in more than a decade, the number of fixed-income dealers used by the typical U.S. institution fell by a meaningful amount from 2008 to 2009. The primary driver of that decline was obviously the consolidation among major dealers, as most U.S. institutions had trading relationships with one or more dealers that ceased to exist during the crisis. However, the results of the Greenwich Associates’ annual 2009 U.S. Fixed-Income Study suggest that institutions were also proactively cutting back on dealer rosters due to concerns about heightenedcounterparty risk:
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Approximately one-third of U.S. institutions say they reduced the number of dealers with whom they trade fixed-income over the past year.
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Thirty-seven percent say they shifted trading volume to dealers perceived as having the least counterparty risk.
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Another 27% say they reduced the concentration of trading business they do with any one dealer, presumably as a means of managing counterparty risk by limiting exposure to individual firms.
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