Jonathan Calder, managing director of loan sales and trading at Citi, declined to provide comment, but loan investors were effusive about the potential benefits for the overall market. Some investment banks, such as Credit Suisse First Boston, have waived fees, but this latest development is significant because Citi has such a major share of the market. The bank was long considered a holdout over assignment fees alongside J.P. Morgan and Bank of America, said loan participants.
Ed Hamilton, managing director and head of loan trading at B of A, said the bank is evaluating Citi's proposal. Currently B of A waives assignment fees on all B of A deals that trade with the desk and pays assignment fees for the investor when a non-B of A deal trades with the desk. A J.P. Morgan spokesman declined comment.
"CSFB views it as a significant positive that Citibank has joined CSFB and Deutsche Bank in eliminating or significantly reducing transfer fees associated with its own deals. Three of the top five underwriters have moved to significantly enhance liquidity in the leveraged loan market by reducing the transfer costs," stated Don Pollard, global head of CSFB's syndicated loan group.
Citi's initiative will boost liquidity and will encourage other desks to waive fees, said several buyside traders and portfolio managers. In time it will benefit everyone, including Citibank, said a portfolio manager. "This is a major step forward for improving liquidity in the market. You can only really trade with the agent," one trader noted, adding that when you are forced to trade away and have multiple funds, this changes the economics of the trade. Fees have always been a major complaint, but the issue has taken on more urgency as the size of individual trades has shrunk from $10 million to $1-2 million and asset management firms have increased the number of funds that they run. Furthermore, modernization of the asset class through technology should have mitigated the need for a $3,500 fee per trade. "These transfer fees have become a huge burden. There is a cost to administering the trade, but it's not $3500," said one banker.
"There has been a lot of noise recently and accounts are getting bigger. It's a huge step forward. Citibank doesn't have to do it. They are looking at the buyside perspective," said one manager, explaining one possible reason for the timing. A couple of months ago Barry Zamore, a CSFB trader, stirred up the buyside to act by sending out three emails to the buyside urging them to take action on the issue (LMW, 5/31).