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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.

15.  Top twenty-five bank holding companies by commercial and industrial loans, and agenting volume.

Billions of dollars

Bank holding company C&I loans 3-year
agenting
volume
Citibank 33.9 14.6
Bank of America 21.3 6.4
Chase Manhattan 18.6 13.6
Manufacturers Hanover 16.6 5.8
Bank of New York 14.4 ...
     
NCNB (TX, FL, and NC) 13.0 3.9
Chemical Bank 11.7 10.9
First National Bank of Boston 11.2 .1
Morgan Guaranty 10.5 24.3
Security Pacific 10.2 .6
     
Wells Fargo 9.8 ...
Continental 8.9 3.8
First National Bank of Chigago 8.2 11.1
Mellon Bank 8.1 1.0
National Westminster USA 6.3 .3
     
NBD Bank 5.9 .2
Bankers Trust 5.5 11.0
Union Bank 4.8 ...
Corestates Bank 4.5 .4
Pittsburgh National Bank 3.8 ...
     
Marine Midland 3.4 ...
Wachovia Bank (North Carolina) 3.3 ...
Manufacturers Bank 3.3 ...
Texas Commerce Bank 3.0 .4
First Union National Bank 3.0 ...


Prospective Changes in Market Share of U.S. and Foreign Banks

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