Underwriting profits around the globe have slipped for the global banks this year, with proceeds down nine percent. These results underscore an already difficult year for the major banks, still struggling to return to pre-2008 form.
Proceeds from global equity capital markets underwriting activity have fallen to $496.14 billion from $544.96 billion so far this year, and market insiders attribute this to investors confidence, as they prove less willing to take risks amid an uncertain economic recovery. While the revenues are down, the actual number of deals is up, 5.6% to 2,817 deals. Amidst the economic downturn, banks have been willing to take on and underwrite smaller offerings than in the past.
JPMorgan Chase & Co (NYSE: JPM) nabbed the top spot among banks for equity capital markets (ECM) underwriting in the first three quarters of 2010, but it hauled in less than half of what it did a year earlier. Goldman Sachs (NYSE: GS) remained in third on the list. JPMorgan’s proceeds were nearly half of last year’s for the same time period, with proceeds of just $39.5 billion compared with $80.07 billion a year earlier. The bank underwrote 224 offerings according to Thomson Reuters data at the close of U.S. markets on Friday, compared with 290 in the period a year earlier.
Frank Maturo, co-head of equity capital markets for the Americas at Bank of America Merrill Lynch commented that a slow economic recovery may have affected companies’ quarterly results and valuations, meaning that IPOs in the pipeline may not be able to fetch top dollar. Maturo further surmised that along with an attractive debt market and low rates, some companies may be waiting. When asked about a broader pickup in IPOs, Maturo went on to say “Clearly if the deals price well and trade well there will be follow through to that. With the cheap cost of debt, the private equity-backed deals are not being forced into IPOs. The market has picked up substantially in September , but valuations are not quite as attractive as some might like to see. It’s possible we’ll see a number of deals pushed to late 2010 or 2011.”
As improved financing options emerged, global mergers and acquisitions activity has risen. Substantial war chests have allowed corporate and private equity buyers to pursue deals and have created a flurry of activity this year. Worldwide M&A has totaled $1.678 trillion so far this year, up 21 percent from a year earlier, according to preliminary data from Thomson Reuters.
