Salomon now No. 1 in fees from stock sales

It tops Goldman Sachs, with $171 million boost from the Travelers IPO

January 01, 2003|By BLOOMBERG NEWS

NEW YORK - Salomon Smith Barney, the securities underwriting arm of Citigroup Inc., earned more money arranging U.S. stock sales in 2002 than any other firm, including the previous year's leader Goldman Sachs Group Inc.

Salomon's fees from initial public offerings and secondary sales totaled $622 million in the past 12 months, a third more than the $471 million generated by Goldman Sachs, according to data compiled by Bloomberg. Without a $171 million fee for managing a $4.27 billion IPO of another Citigroup unit, Travelers Property Casualty Corp., Salomon would have placed fifth.

The fifth-largest securities firm, with 41,164 employees, Salomon has benefited from its relationship with Citigroup, the third-biggest arranger of corporate loans.

Dominion Resources Inc., a Virginia utility that has borrowed from Citigroup, was among 67 companies that chose Salomon to manage stock sales, including its $918 million in convertible securities and stock.

Citigroup, the world's largest financial institution by market value, is "doing a decent job of getting clients on one end of the bank over to the other end," said Michael Santelli, who helps oversee $25 billion at National City Investment Management and owns shares of Citigroup and Morgan Stanley.

Credit Suisse First Boston ranked second in fees from stock sales, earning about $584 million, including $49 million from managing the $2.5 billion Alcon Inc. IPO with Merrill Lynch & Co.

Morgan Stanley was third with $509 million, including $47 million from Accenture Ltd.'s $1.87 billion secondary share offering. Merrill Lynch ranked fourth with $488 million in fees, and Goldman was fifth.

Citigroup increased its share of the U.S. equity underwriting market to 14.6 percent from 11.6 percent the previous year. Fees rose 16 percent from $537 million in 2001.

Rick Bartlett and Tyler Dickson, who graduated from Dartmouth College together in 1989 and have headed Salomon's U.S. stock underwriting since March 2000, didn't return calls. "We look forward to continuing our momentum in 2003," said Duncan King, a Salomon spokesman.

Salomon, fifth in equity underwriting in 2001, managed the most IPOs in 2002, generating an average fee of 4.53 percent of the dollar value of transactions.

Initial public offerings, among Wall Street's most lucrative businesses, generate bigger fees than do secondary share sales or corporate bond offerings because companies going public are less familiar to investors. Underwriting fees are as much as 7 percent for first-time share sales totaling less than $100 million.

Goldman arranged $16.7 billion of stock transactions, including secondary sales, in 2002, the most among underwriters for a third year.

The firm's fees fell by more than 50 percent in 2002 in part because its share of more-lucrative IPOs dropped to 13 percent from 24 percent in 2001.

Including secondary offerings, Goldman's market share slipped to 15.7 percent from 19.7 percent in 2001 and 22.7 percent in 2000, according to Bloomberg data.

"We're pleased with our continued leading position in what has been a difficult market environment," said Andrea Rachman, a Goldman spokeswoman.

The market for U.S. IPOs shrank 38 percent to $28 billion last year amid a 24 percent decline in the Standard & Poor's 500 stock index.

The drop didn't hurt Salomon as much as rivals such as Morgan Stanley, said Steve Berman, who helps manage $7 billion at Stein Roe Investment Counsel and holds shares of Citigroup, Merrill Lynch & Co. and Lehman Brothers Holdings Inc.

Computer-related companies, many of which sold stock during the late 1990s, slashed growth forecasts, hurting Morgan Stanley, the No. 1 U.S. equity underwriter in 1999, which slipped to third in 2002.

"Salomon wasn't big in tech, and tech had the biggest falloff," Berman said.

Salomon last year managed or helped manage 13 IPOs for companies in 12 industries, including LeapFrog Enterprises Inc., a maker of educational toys; ExpressJet Holdings Inc., an airline; and Loews Corp.'s Carolina Group, the maker of Newport cigarettes.

The Citigroup unit, which had a 27 percent share of the market for underwriting U.S. IPOs, earned $345 million in that business in 2002.

Goldman had 13 percent of the IPO market, earning $180 million in fees; Merrill Lynch & Co., 12 percent and $162 million; Credit Suisse First Boston, 11 percent and $172 million; Lehman, 11 percent, $142 million; and Morgan Stanley, 9.6 percent, $142 million.

Morgan Stanley's overall equity underwriting market share slid to 13 percent from 20 percent three years earlier.

The defection in 2001 of Morgan Stanley's former president and chief operating officer, John Mack, after 28 years with the firm may have cost Morgan Stanley investment-banking business, some investors said. Morgan Stanley's fall "has to do with the people turmoil and which industries were hot," Berman said.

Mack joined rival Credit Suisse First Boston and was named co-chief executive officer in September.

"Our position has always been to concentrate on quality and not play the market-share game," said Melissa Stonberg, a spokeswoman for Morgan Stanley.

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