Pressure is mounting on JPMorgan to waive assignment fees after Bank of America gave up the practice last week. JPMorgan is now the last major bank that still charges the fees. While some believe peer pressure could force JPMorgan to drop the practice, others point out that its dominance of the loan market means it has no economic incentive to give them up. Officials at JPMorgan declined to comment.
B of A's decision to waive fees was welcomed by investors. "It is absolutely a good thing," said Michael Bacevich, managing director at Hartford Investment Management. "It will improve liquidity in the market. It is long overdue. It is a great credit to B of A that they have done this. The pressure on JPMorgan to give up assignment fees will be significant."
B of A is waiving fees for all lenders and other agents trading a B of A-agented syndicated loan (CIN Web site, 1/31). This excludes loans that are traded through an agent that does not waive assignment fees for B of A's benefit. Jeff Kane, global head of credit syndicate at B of A, said the decision was driven by the bank's attempt to be as investor friendly as possible. It hopes that by waiving the fees it will increase its trading volumes. "The loan market has seen tremendous growth in recent years, both in terms of supply and demand. We felt that the market had evolved to a level of maturity such that by increasing investor satisfaction we should see an increase in our trading volumes," said Kane. He added that by waiving fees the bank hopes to promote increased liquidity and transparency in the syndicated loan market.
One investor said he was surprised that B of A held out for so long, adding that the large revenue loss from renouncing the fees was probably the reason it continued to charge them while other banks gave them up long ago. Kane said the bank anticipates making up for the loss in revenue through increased trading. "We felt that the anticipated increase in the secondary business would offset any initial loss of revenue," he said.
Assignment fees have become increasingly unpopular with investors as they have come to represent a larger portion of the cost of a loan. "With the number of loan participants increasing and allocations getting smaller, assignment fees have become a more significant component of cost," said Mark Gold, managing director and senior portfolio manager at Trust Company of the West.
It is unlikely that JPMorgan will be hurt financially if it decides not to waive fees. One portfolio manager pointed out that its dominance of the loan business means there is no economic need for the bank to give them up. "JPMorgan is so dominant in the loan business that that you can't help but trade with them," he said. "If it gives in it will simply be because of investor and peer pressure."
Kane said that B of A's decision to renounce the fees was not driven by pressure from other banks. "It is more the growth of the market and trading that has driven our decision to waive fees than pressure from other dealers," said Kane.
Banks that do not charge assignment fees include: Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, Wachovia Securities, The Royal Bank of Scotland, Merrill Lynch, Scotia Capital, Lehman Brothers, Bear Stearns, Morgan Stanley, UBS, The Bank of New York, National City Bank, SunTrust Bank and TD Securities.
The move was also welcomed by banks that have campaigned to rid the market of the fees. Barry Zamore, managing director of the syndicated loan group at Credit Suisse, has been vocal in his opposition to assignment fees over the past year-and-a-half and has encouraged the buyside to push for the elimination of the fees. "I think it is awesome," Zamore said of B of A's move. "We hope the buyside will continue to convey the message that assignment fees hurt the liquidity of the loan market."
