The biggest US investment banks suffered a $4.6 billion drop in revenue from stock raising freezes on recent market volatility, a sharp slowdown for Wall Street, which posted record gains on stock sales last year.
Morgan Stanley, JPMorgan Chase, Bank of America, Goldman Sachs and Citigroup have combined $645 million so far this year, according to data provider Dealogic. Industry-wide ECM fees are down more than 75 percent year-on-year to $2.7 billion.
The shift from feast to famine underscores the unpredictability of investment banking, a key reason big investors price these stocks at a discount to, often even the, more predictable industries frustration by bank directors.
According to data from Dealogic, the U.S. did not experience a single traditional IPO between Feb. 17 and March 14, the longest non-holiday drought since 2017. A small company broke the winning streak Tuesday by listing at $16 million, but bankers expect it will take time for bigger deals to return.
The volume of follow-up equity sales and convertible bond issuance has also slowed dramatically, and the dry spell is expected to result in a sharp fall in first-quarter revenue for banks, which benefited from a spate of deals early last year.
“The right advice [to companies] is to prepare and be agile as windows may open and close in much less time than we have been used to over the past 12 to 18 months,” said Daniel Burton-Morgan, head of Americas syndicate for ECM at the bank of america .
Bankers were braced for a slowdown in activity after a record 2021, not least because the first three months of last year were marked by a boom in IPOs for special purpose vehicles, which has since slowed dramatically.
Many nonetheless started the year optimistic about a strong pipeline of potential IPO candidates like Reddit, Instacart, and Stripe.
However, rising interest rate expectations, market volatility caused by the war in Ukraine and the dreadful performance of many of the most notable stock exchange listings over the last year, such as B. the electric vehicle manufacturer Rivian, after the stock market listing meant that most activities were put on hold.
“People probably thought it could be a 30 to 50 percent drop, but I don’t think anyone modeled 75 percent down,” said Chris Kotowski, banking analyst at Oppenheimer & Co.
Just one company — private equity firm TPG — has raised more than $250 million in an IPO this year, compared with 43 in the first 13 weeks of last year, excluding Spacs. The nine-week gap since that deal is the longest without a $250 million IPO since 2016.
Several senior bankers stressed that there was a severe backlog of companies looking to raise capital, but said stock markets would need to calm down for an extended period before activity could pick up again, particularly for IPOs that require a longer time to market.
“We need more stability in the market to make investors feel comfortable,” said a senior ECM executive. “If we were so lucky [as] To get positive news out of Ukraine, people are poised and ready to enter the market, but no one has a crystal ball at the moment to know when that will happen.”
The downturn has caused US and European banks to tumble down global ECM rankings. According to data from Refinitiv, Chinese banks account for six of the top 10 ECM bookrunners by revenue this year, compared to just one at the same time last year.
https://www.ft.com/content/31dcd748-26d2-4f7a-ad3d-a3efc05c0f25 US banks suffer $4.6 billion in equity raising drought