ples of this. Sometimes, intermediaries specialize in particular sectors, types of
clients, regions, or products. Some have strong businesses in the major wholesale
markets and as a result are able to selectively leverage their operating platforms to
access markets that are less efficient. They may also be able to cross-link on a selec-
tive basis both the major and peripheral markets as interest rates, exchange rates,
market conditions, and borrower or investor preferences change, for example, by fi-
nancing the floating-rate debt needs of a highly rated American corporation by issu-
ing fixed-rate Australian dollar bonds at an especially good rate, and then swapping
the proceeds into floating rate U.S. dollars. These cross-links—permitting the inter-
mediary to creatively marry opportunistic users of finance to opportunistic investors
under ever-changing market conditions—are what in many cases separate the win-
ners from the losers.
(a) Wholesale Finance Market Activity Segments. Global wholesale banking in-
volves a range of businesses that service the financial and strategic needs of corpo-
rate and institutional clients, trading counterparties, and institutional investors. In this
section of the chapter we characterize the key wholesale and investment banking
product lines, and in the appendix indicate where data are available and which were
the leading firms in 1999 in each segment. In subsequent sections of the chapter we
attempt to explain the underlying reasons for the wide differences that appear to pre-
vail in competitive performance among firms in the industry.
(i) Wholesale Lending. Loan syndication comprises an important wholesale finance
activity. It involves the structuring of short-term loans and “bridge” financing, credit
backstops and enhancements, longer-term project financing, and standby borrowing
facilities for corporate, governmental, and institutional clients. The loan syndicate
manager often “sells down” participation to other banks and institutional investors.
The loans may also be repackaged through special-purpose vehicles into securities
that are sold to capital market investors. Syndicated credit facilities are put together
by lead managers who earn origination fees, and jointly with other major syndicating
banks earn underwriting fees for fully committed facilities. These fees usually differ
according to the complexity of the transaction and the credit quality of the borrower,
and there are additional commitment, legal, and agency fees involved as well.
Global lending volume increased rapidly in the 1990s and the early 2000s. The
business is very competitive, with loan spreads often squeezed to little more than 10
to 20 basis points. Wholesale loans tend to be funded in the interbank market, usu-
ally in Eurocurrencies. In recent years investment banks, such as Goldman Sachs &
Co., Lehman Brothers, and Merrill Lynch, have moved into what was once almost
exclusively the domain of commercial banks, and many commercial banks, such as
Citibank, Crédit Suisse, NatWest, and J.P. Morgan, have backed away from lending
in this sector to focus on structuring deals and trying to leverage their lending activ-
ity into fee-based services. The firms coming in find it important to be able to finance
client requirements with senior bank loans (at least temporarily) as well as securities
issues, especially in cases of mergers and acquisitions on which they may be advis-
ing. Those departing the business are concerned about the high costs of doing busi-
ness and the low returns.
(ii) Securities Underwriting. The securities market new-issue activity usually in-
volves an underwriting function that is performed by investment banks. Corporations
2.3 GLOBALIZED BANKING ACTIVITIES 2 • 11