Block underwriting has jumped as a portion of share offerings in the US so far this year, highlighting a period of low volatility and increasingly aggressive use of banks’ capital.

Also known as “bought deals” or “hard underwriting”, in such transactions, rather than acting as intermediary, the underwriting bank buys shares from the issuer directly and places shares with outside investors.

Blocks represented 43 per cent of all proceeds from follow-on offerings of shares in the US in January, the highest proportion on record, according to Ipreo, a capital markets data provider and consultancy.

Overall, blocks have represented a third of all US follow-ons so far in 2012, matching the proportion by this point last year, and again exceeding the prior peak in 2007. There have been 15 deals in the US so far this year, the most since 2007, raising $3.9bn.

In block deals, the underwriter takes on the risk of finding buyers for the shares, so banks are more willing to do these types of deal as equity market unpredictability appears to decline. The Vix index, a gauge of price movement expectations, began this week at 18, well below the average level of 24.5 last year.

Matt Johnson, global head of equity syndicate at Barclays Capital, also said that asset sales by European companies and private-equity firms are driving a jump globally. “I think you’ll continue to see more blocks as Europe gets its balance sheets in order,” he said.

Amid slow initial public offering markets, competition by bankers to buy blocks is rising, potentially increasing risk. While discounts have narrowed, the deals are shrinking in size. In 2012, the average deal size has fallen to $258m so far this year from $462m last year. But block sizes overall have grown from an average of $164m in 2007.

The discount offered by issuers from their market price has narrowed to just 2.1 per cent so far this year, the lowest since at least 2007, according to Ipreo.

Bankers also use blocks, in which they frequently approach the issuers, to generate deal flow when initial public offering demand is light, as it has been so far this year. Credit Suisse has led the most deals so far in 2012, while Barclays Capital led last year, according to Dealogic.

Most block deals are done by financial sponsors that regularly sell shares in companies they took public. The largest this year was $419m worth of shares in Sally Beauty Holdings, a salon supplier, sold by Clayton, Dubilier & Rice, a private equity firm, and underwritten by Bank of America.

Real estate investment trusts, which issue shares several times a year to raise capital to buy new properties or mortgage securities, are also common block sellers. The largest deal was for Ventas, which owns hospital properties, for $1.1bn, underwritten by Citigroup.

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