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April 30, 2002

Banks Are Still Booming

By Colleen Marie O'Connor

Investment banks are still healthy, despite some recent layoffs and rocky earnings numbers.

The banks demonstrated there's plenty of money to be made in initial public offerings - at least through underwriting activity. That's despite dour earnings announcements and continued layoffs.

The first quarter's 17 IPOs boosted Citigroup's Salomon Smith Barney to the top slot for underwriting in the quarter ending March 31. The firm was involved in four deals that raised a total of $5.15 billion for the quarter, according to The IPO Reporter database. Of course, that is largely because the firm was the only book runner for the $3.8 billion Travelers Property Casualty Corp.(NYSE:TAPA).

Merrill Lynch moved up to the number two slot, having raised $2.58 billion via four deals in the quarter. Credit Suisse First Boston rounded out the top three, tallying three IPOs that raised $2.58 billion.

These three underwriting firms pulled the legs out from under Wall Street rivals Morgan Stanley and Goldman Sachs, long touted as the top syndicate dogs. In terms of dollars raised, neither was anywhere near the action.

Morgan Stanley raised $975.8 million, and Goldman, which had led the underwriting standings for the previous quarter, pulled in only $397.1 million.

Just how different was Q1 2002 from the previous quarter? To begin with, Goldman led the standings by completing eight deals in Q4 2001 - in a post-Sept. 11 environment - raising a hefty $8.1 billion. Second place went to UBS Warburg, which had six deals that raised $2.06 billion. This year, UBS Warburg co-lead managed just one deal, WCI Communities Inc., with Credit Suisse First Boston. And Merrill Lynch was in the third slot, with three deals that raised $1.89 billion in the fourth quarter last year.

According to data provided by Thomson Financial, disclosed fees dipped last quarter from a year ago, due to fewer offerings and a downturn in proceeds.

Salomon Smith Barney raked in the most fees for the quarter, a whopping $155.4 million from the Travelers deal alone. Merrill Lynch and CSFB walked away with a cool $87.3 million in disclosed fees from the Alcon Inc. public offering.

Q1 2002 certainly shook out the cobwebs. First, consider that even without the Travelers offering, Salomon's three other lead managed deals raised $1.27 billion, still far more than the action Morgan and Goldman recorded for the quarter.

Furthermore, co-lead managed deals proved a prominent feature of the market for the quarter. Such behavior is uncharacteristic for I-banks, which have a history of heated IPO rivalries. These generate the most investment banking fees, say analysts who follow the publicly-traded banks.

Merrill Lynch shared top billing for all of the four offerings it handled. CSFB shared two of its three offerings. Morgan Stanley's two IPOs were both co-lead managed deals, and Goldman shared one out of two.

On the other hand, Salomon Smith Barney shared billing on just one initial public offering, the Carolina Group (NYSE:CG), with Morgan Stanley. That's a statistic no other I-bank came close to, with the exception of one hit wonders - Jefferies & Co., J.P. Morgan Chase and ING Baring Furman Seltz. Each pushed out just one offering last quarter.

In surveying activity for the quarter, Rich Peterson, chief market strategist for Thomson Financial, said he believes reports suggesting a collapse in investment banking are exaggerated. Peterson pointed out that the volume of global debt, equity and equity-related issuance now totals $1.13 trillion. That's up from the $1.08 trillion recorded in the first quarter of 2001. Peterson called IPO issuance for Q1 2002, in terms of dollar proceeds, a "healthy period," and noted that the 20-plus new filings in March was the highest number of new filings in a single month since November 2000.

Colleen Marie O'Connor is an associate editor at The IPO Reporter, published by Venture Economics, a Thomson Financial Company.