(Bloomberg) — JPMorgan Chase & Co. is the clear winner this year in an increasingly competitive municipal-bond market, encroaching on Bank of America Corp.’s stranglehold on the top slot of underwriting rankings.
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The New York-based bank managed $38.2 billion of long-term state and local government debt as of Dec. 15, or roughly 11% of the overall issuance, according to data compiled by Bloomberg. That marks a nearly 3 percentage point jump from the bank’s share last year, the biggest increase among the 91 managers who have run at least one deal this year, the data shows.
“We were fortunate this year to have a very balanced performance across numerous sectors in the market, however, our market leadership in the energy space with rate-payer securitizations was a key differentiator for us,” said Jamison Feheley, head of public finance investment banking at JPMorgan.
Underwriting municipal bonds wasn’t an easy job in 2022 as an aggressive interest-rate hike schedule stymied debt sales. State and local governments sold $359 billion of long-term munis so far this year, a 21% decrease from the same period in 2021 as borrowing costs surged. And for much of the year demand for the debt seized up, making it harder to place bonds with investors.
Still, JPMorgan cinched a number of high-ticket deals in the energy space like the $3.2 billion Louisiana Utilities Restoration bond sale in May. The shop also underwrote key airport deals at John F. Kennedy International Airport in New York and Chicago O’Hare International Airport.
That helped JPMorgan climb into the second slot of the underwriting rankings behind Bank of America, breaking Citigroup’s seven-year streak as the No. 2 muni manager. A spokesperson at Citi declined to comment.
The dip in sales and analysts’ projections for only a modest increase in sales next year may spur managers to shut or merge their muni-banking desks. Only about 90 banks have managed at least one transaction in 2022, a 38% plummet from 2013, when Bloomberg started tracking the data.
Read More: Muni Issuance Seen Posting Only Modest 2023 Rebound as Fed Hikes
The drop is a result of smaller firms either getting shut of the market or consolidating with medium or larger banks to stay afloat. Tighter regulation for US state and city debt has also played a role in pushing underwriters out, and so has opting for direct lending.
“It’s a much leaner business than it used to be,” said Matt Fabian, partner at Municipal Market Analytics. “We have fewer firms that dabbled in the space for incremental profit.”
And Tom Kozlik, Hilltop Securities Inc.’s head of municipal research & analytics, said he wouldn’t be surprised if the number of underwriters dwindles even further by 2024 or 2025.
While the competition heats up among underwriters, issuers like cities and towns will start seeing a reprieve as the demand for paper returns, which analysts expect next year as performance rebounds.
“They’re likely to get very solid market access,” Fabian said. “Some of that comes on the back of the underwriters, who should be more anxious about growing and retaining business.”
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