Some Loan Traders Skeptical of Morgan Stanley's Fee Cuts

Article excerpt

Depending on who's talking, a new loan trading policy by Morgan Stanley Dean Witter & Co. that eliminates fees and slashes minimum trade amounts will either bring about a revolution in the syndicated loan market or amount to little more than posturing by an also-ran in the business.

The policy, announced late last week, eliminates the legal and back-office fees, called assignment fees -- usually $2,000 to $4,000 a trade -- for trades executed by Morgan Stanley, and reduces the minimum trade to $1 million, from $5 million.

Allison Taylor, president of the Loan Syndications and Trading Association, the industry's chief trade group, called the policy an encouraging first step that will promote liquidity in the market.

"It's a phenomenal move," Ms. Taylor said. "I'd like to see other banks follow their lead. I'm sure it's going to be well received, because it meets some of the goals of the investor community."

The secondary loan market has been slow to grow, particularly when compared with the markets for stocks, bonds, and even securities for credit cards, mortgages, and real estate. Loan trading was estimated at $69.1 billion in 1999 -- just 6% of all loans syndicated during the same period, according to Loan Pricing Corp.

A major hurdle is the cost of making a trade. Loan trading requires more back office work -- notification, legal work and borrower approval -- than trading of stocks, bonds, and other securities. That has put the secondary loan market in a quandary: Eliminating fees could spur market growth but may also hit a revenue center.

"For banks which are acutely focused on their operating efficiency ratio, giving up a source of revenue will be a sore point," said Kevin Meenan, a managing director with Societe Generale in New York.

Until now, banks have only lowered minimums and slashed fees to promote trading of specific loans. BankAmerica Corp. slashed assignment fees for an $850 million Omnipoint Corp. …