JPMorgan Is Top Bank for Underwriting but Revenue Halves

Monday, 27 Sep 2010 10:07 AM

 

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Global stock underwriting proceeds have slipped 9 percent so far in 2010 as investors have proved less willing to take risks amid an uncertain economic recovery.

Proceeds from global equity capital markets underwriting activity have fallen to $496.14 billion from $544.96 billion so far this year.

But the number of deals has increased 5.6 percent to 2,817 deals compared with a year earlier as banks have been willing to underwrite smaller offerings.

Globally, JPMorgan Chase nabbed the top spot among banks for equity capital markets underwriting in the first three quarters of 2010, but it hauled in less than half of what it did a year earlier.

While the bank kept its No.1 ranking, it brought in proceeds of just $39.5 billion compared with $80.07 billion in the same period 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.

Equity capital markets data includes underwriting of initial public offerings, follow-on offerings and other equity-related securities.

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, said Frank Maturo, co-head of equity capital markets for the Americas at Bank of America Merrill Lynch.

That, along with an attractive debt market, may have caused some companies to wait, Maturo said.

In contrast to lagging global ECM activity, global mergers and acquisitions activity has risen as improved financing options and substantial war chests have allowed corporate and private equity buyers to pursue deals.

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. Still, the third quarter saw a handful of landmark ECM deals.

China's AgBank IPO in July raised $22.1 billion. Last Thursday, Brazilian state oil company Petrobras sold $70 billion in shares at a higher-than-expected price, making it the world's biggest ever public offering.

To date, Morgan Stanley is in the No. 2 spot (194, $38.64 billion) on the global equity capital markets league table and Goldman Sachs is third (149, $36.34 billion). Bank of America Merrill Lynch is fourth (179, $33.42 billion), and UBS fifth (171, $25.32 billion).

"Data points for how robust the IPO markets are post-Labor Day are still to be determined," Maturo said.

Improved Outlook?

The outlook for equity capital markets globally could be improving. In the U.S., for example - where top U.S. automaker General Motors could raise as much as $20 billion in November - a strong stock market could buoy investors' optimism.

As of the close of markets on Friday, the S&P 500 was up 9.47 percent so far in September — its strongest monthly gain since March 2000 when it rose 9.67 percent. The end of summer holidays and a lessening worry that the European sovereign debt crisis will spread may also help, analysts say.

"It will continue to be selective, deal by deal, and deals will be priced for their own, specific fundamentals, but on balance I think we're in a much more constructive phase of the market than we have been in some time," said Mark Hantho, global co-head of equity capital markets at Deutsche Bank.

In October the Asian life insurance business of American International Group, AIA Group, could raise about $15 billion. The IPO comes after AIG failed to sell its Asian business earlier this year to Britain's Prudential for $35.5 billion.

The British insurer had asked AIG to cut the price to $30.4 billion, but was turned down, leading to the termination of the agreement.

AIG, which is nearly 80-percent owned by the U.S. government, is disposing of assets to repay taxpayers who committed $182.3 billion to prop up the insurer during the financial crisis.

In November, GM, another company bailed out by U.S. taxpayers, is expected to hold its IPO.

The IPO, scheduled for directly after U.S. mid-term congressional elections will begin the process of repaying the U.S. government for its $50 billion bailout, after which it retained a 61-percent stake.

There are also a handful of large private equity-backed IPOs in the U.S. pipeline. Hospital operator HCA has filed to raise up to $4.6 billion and Toys R Us has filed to raise up to $800 million. Nielsen Holdings BV, best known for viewership ratings that often determine the fate of TV shows, hopes to raise $2.01 billion.

"Clearly if the deals price well and trade well there will be follow through to that," Bank of America's Maturo said, when asked about a broader pickup in IPOs. He added 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," he added. "It's possible we'll see a number of deals pushed to late 2010 or 2011."

© 2014 Thomson/Reuters. All rights reserved.

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