During 2011, the Build America Bond program will come to an end. In addition, the Republicans will be gaining control of state legislatures, and expecting to cut government spending in the process. Combining these variables has led JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) to expect municipal bond issuances to fall next year.
Analysts at JPMorgan have commented in a report to clients that sales may fall to $395 billion in 2011 from about $415 billion this year. Chris Mier,a strategist at Loop Capital Markets LLC, similarly predicted in a report published yesterday a 12 percent decline in issuance to $375 billion. Issuers will also face credit challenges, with investors asking whether cash-strapped states will be able to pay back.
Natalie Cohen, a senior analyst at Wells Fargo Securities commented, “We do not envision a return to the same level of revenues in the foreseeable future, if ever.” She projected that overall volume would be down 10 percent to 15 percent from the current year.
Volume will decrease in the first quarter as new governors take office and credit doubts make investors “less hospitable,” Bank of America Merrill Lynch said in a Dec. 13 report. It predicted that the market may recover as leaders seek to fund already-started projects, leading to a “robust” end to the year.
What we see through all this is that there is a near unanimous agreement in what to expect in 2011L fewer municipal bond issuances. Will this impact the profits of the investment banks that would normally handle these placements? Perhaps – though, the expected boom in IPO and capital market activity may more than make up for it.
