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Wall Street Banks Regaining Share of Financing Deals

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Wall Street banks are reporting gaining back some of the share of financing deals they had lost to alternative-asset fund managers, insurers and other private credit.

The broadly syndicated loan market dominated by banks refinanced almost $12 billion of debt previously from direct lenders in the first quarter, reversing a trend that was seen during the previous two quarters, the Wall Street Journal (WSJ) reported Wednesday (April 10).

Quoting a Moody’s Investors Service report, the WSJ said, “banks are fully aware of the substantial capital that direct lenders have, and are fighting back.”

Banks are doing so by returning to underwriting deals and lowering prices, according to the report.

Investment banking fees garnered by banks covered by analysts at Morgan Stanley are expected to rise 19% in the first quarter compared to a year earlier, those analysts said, per the report.

While initial public offerings (IPOs) and mergers and acquisitions (M&A) are slower than they were a year ago, loan syndication and debt underwriting fees have leapt during that time, according to the report.

Banks could also see a boost in their available capital if the Federal Reserve dials back some of the proposed higher capital requirements, the report said.

Banks have built up capital beyond their current requirements in anticipation of those higher ones, so if the Federal Reserve does dial back, some of the banks’ record $180 billion of “excess” capital could be deployed in other ways, per the report.

Macro uncertainty and some concerns about their own liquidity positions had led banks to impose tougher lending terms, PYMNTS reported in February. Lenders reported both tighter standards and weaker demand for commercial and industrial (C&I) loans in the fourth quarter.

It was reported in March that there is an increasing interest in dealmaking and a resurgence of substantial IPOs in Europe. There is a “lot of pent-up demand” for M&A among European startups, Richard Diamond, global head of financial technology for Citi investment banking, told Bloomberg.

These companies, previously focused on improving operational efficiency and profit margins, now exhibit a renewed optimism and growth eagerness, according to the report.