Banking & Capital Markets

Salomon Smith Barney Tops Equity Lead Table

Subtract the Travelers spinoff, however, and Solly comes in fifth. Elsewhere: dividends paying dividends.
John Goff and Stephen TaubJanuary 5, 2003

Last year wasn’t exactly a banner year for underwriting corporate securities. The stock market record a third-straight losing year, initial public offerings were far and few in-between, and debt ratings plummeted.

In this bleak environment, however, one investment bank made out okay: Salomon Smith Barney.

Indeed, the Citigroup Inc. unit earned more money from helping companies raise money in the equity markets in 2002 than any other bank, according to calculations by Bloomberg.

Salomon’s rake from initial public offerings and secondary issues totaled $622 million. That worked out to about 33 percent more than the $471 million generated by Goldman Sachs last year, according to the wire service.

In fact, Citigroup lifted its share of the U.S. equity underwriting market to 14.6 percent, up from 11.6 percent in the previous twelve-month period.

The numbers, however, are not all what they seem. If you exclude the $171 million fee for managing the $4.27 billion IPO of another Citigroup unit, Travelers Property Casualty Corp., Salomon would have placed fifth on the ranking, according to the report.

As CFO.com noted last week, Salomon Smith Barney was the top bond underwriter 2002 as well. That’s the second straight year in a row that the investment bank has topped the debt lead tables.

Credit Suisse First Boston was the second largest generator of fees from stock offerings, earning about $584 million, including $49 million from managing the $2.5 billion Alcon Inc. IPO with Merrill Lynch & Co.

Morgan Stanley ranked third with $509 million, including $47 million from Accenture Ltd.’s $1.87 billion secondary stock offering.

Merrill Lynch and Goldman Sachs rounded out the top five of equity underwriters.

All told, the IPO market shrunk a whopping 38 percent, to $28 billion, last year. The drop in the number of initial public offering appeared to have hurt Morgan Stanley the most. The top equity underwriter in 1999, the white-shoes firm fell to third-place in 2002. Morgan Stanley’s overall equity underwriting market share slid to 13 percent, down from 20 percent three years ago.

“Our position has always been to concentrate on quality and not play the market-share game,” Melissa Stonberg, a Morgan Stanley spokeswoman, told the wire service.

Top U.S. Equity Underwriters, By Fees Earned
1. Salomon, $622 million
2. Credit Suisse, $584 million
3. Morgan Stanley, $509 million
4. Merrill Lynch, $488 million
5. Goldman Sachs, $471 million.

Top U.S. Equity Underwriters, By Deal Volume
1. Goldman Sachs, $16.7 billion
2.Salomon, $15.5 billion
3. Morgan Stanley, $14.2 billion
4. Credit Suisse, $13.3 billion
5. Merrill Lynch, $11.8 billion

Ten largest IPOs:
1.CIT Group, $4.87 billion
2.Travelers Property, $4.27 billion
3.Alcon, $2.53 billion
4.China Telecom, $1.45 billion
5.Carolina Group, $1.13 billion
6.Seagate Technology, $870 million
7.Platinum Underwriters, $743 million
8.Premcor, $497 million
9.Wynn Resorts, $492 million
10.ExpressJet Holdings, $480 million.

Dividends Paying Dividends

In case you’ve been living in a biosphere for the past thirty-six months: the stock market hasn’t been doing real well.

In fact, the dismal performance of the major market indexes is starting to reach Depression-like proportions. According to data released late last week by Standard & Poor’s, the S&P 500 Index has lost $4.3 trillion in market value since year-end 1999. Close to half of that drop in market capitalization occurred last year — a bad year in a string of really bad years. All told, the bellwether S&P large cap index has shed over 40 percent of its capital value during the recent three-year skid.

To put things in perspective: the last time the S&P 500 dropped more than 40 percent over a three-year period, Hoovervilles dominated housing starts (1930-1932). Indeed, December 2002 was the worst month for the S&P 500 (down 6.03 percent) since December 1931.

Not surprisingly, the nosedive of large cap stocks has many investors seeking out other sorts of returns. Dividends, for one, appear to be gaining in popularity. According to Standard & Poor’s, the share prices of dividend paying stocks outperformed non-payers in 2002. Specifically, the 350 dividend-paying issuers in the S&P 500 saw their market capitalization shrink by about 18 percent last year.

No great shakes, admittedly, but still better than the 30 percent drop in market cap for non-dividend payers. And dividend-paying stocks will likely become even more attractive if Pres. Bush is able to convince Congress to eliminate taxes on dividends.

Even without some tax relief, S&P estimates that 138 companies in the S&P 500 will increase their dividend payments in 2003.

That, of course, assumes they have the cash to make those payouts. If corporate pension plans continue to suffer, some businesses may be forced to plump up their company-run retirement plans rather than funnel money back to shareholders.

What are the odds of that happening? Well, Standard & Poor’s estimates that S&P 500 pension fund assets lost a staggering $101 billion in 2002. S&P predicts these companies will need an 8.1 percent equity return (6.34 percent price and 1.75 percent dividend) to earn enough to negate their pension interest costs in 2003.

Right now, plan sponsors would be thrilled if their equity investments just didn’t lose money this year — let alone register an 8 percent gain.

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