THE ECONOMICS OF THE PRIVATE MARKET
Why Do Banks Act as Agents, or Why Is the List of Bank Agents So Short?
Banks appear to enter the private placement agenting business for two reasons. First, such business can generate profitable fee income. As noted previously, almost no data are available on agents' fee income, costs, or profits. On the basis of scanty knowledge about staff sizes and fee rates gleaned from interviews, we speculate that agenting is quite profitable for those banks doing a high volume of business. For those that assist in only a few transactions, and thus cannot capture economies of scale, agenting may be only marginally profitable.
Second, banks may act as agents as part of a strategy of offering a broad array of corporate financial services, not just loans. In section 2 of part 2 we argued that economies of scope exist between private placement agenting and other lines of capital market business, such as making loans or underwriting securities. The relationship officers of commercial and investment banks are the primary sources of prospective clients for private placement agenting. An institution must provide financial services to many corporate clients to generate a flow of agenting business sufficient to justify maintaining an agenting group. Table 15 provides evidence in support of this assertion. It ranks the top twenty-five U.S. bank holding companies by volume of commercial and industrial loans on the books at the end of 1991, and gives the known private placement agenting volume (debt only) for such banks during 1989-91. As tables 14 and 15 reveal, all the top ten bank agents were among the top twenty-five holders of commercial and industrial loans, and the majority of the top lenders also acted as private placement agents.
Billions of dollars