City investment bankers betting that a UK ‘Remain’ vote would help drag dealmaking out of a 2016 slump have had their hopes skittled.
European equity capital markets activity is at a four-year low over the first half of 2016, while takeover action is down a fifth and debt issuance is barely keeping pace with year-ago levels – bearish enough, before last night’s Brexit vote signalled that could be as good as it gets for investment bankers this year.
In the run-up to the UK’s EU membership referendum on June 23 bankers had spoken wistfully of a resurgence in capital markets and M&A activity once the uncertainty around the UK vote had passed – provided that Remain carried the day.
Such a recovery was sorely needed, with Emea investment banking revenues standing at $ 7.8 billion, down 27% to their lowest for any first half of a year since 2003, according to preliminary first-half figures from th data provider Dealogic.
However, those hopes now look forlorn after UK voters backed a departure from the EU, sending the pound tumbling and threatening havoc in the stock markets and for capital markets activity.
A banker leading the equity capital markets business at one City investment bank said: “Markets are down record amounts – this is as bad as it gets. You can see the screens. I’ve got a meeting with my team this morning. Deals are going to get pushed back.”
An investment banking head at a US firm said his team was preparing to put on hold “a couple of transactions” planned for the equity markets during the next week, “pending some more stability and direction in the market”. A fellow investment banking chief at a European firm said that in the debt markets too, issuances would now be “certainly on hold”.
The ECM market had been in recovery in the second quarter, with the $ 58.3 billion of issuance in Emea near double the figure in the first three months of 2016, although supply over the first six months of the year is still down 43% from 2015 levels, at $ 87.7 billion, according to Dealogic.
Deals had been getting bigger, too. Dealogic estimated the amount raised from Emea ECM deals worth more than $ 1 billion in the second quarter stood at $ 20 billion. During the first quarter, such deals raised just $ 8 billion. In the convertible market, bankers found a rare area of issuance where deal value rose year-on-year in the first half, with such issuance rising 30% from a year earlier.
Emea debt issuance looks set to end the first half slightly ahead of where it stood a year ago, up 3% at $ 1.18 trillion, despite fewer bonds being sold, but revenues from DCM activity in the region were in as poor shape as the wider investment banking fee pool, with the $ 2.9 billion figure the lowest at this point in a year since 2003.
Emea-targeted M&A activity in 2016 has dropped more than a fifth (22%) to $ 401.6 billion, although this was a smaller fall than witnessed on a global scale or for US-targeted deals.
Some bankers speaking with FN on the morning of the referendum result were attempting to maintain business as usual. An advisory head said: “There’s a sense of ‘what the bloody hell just happened’ and also a sense that ‘we’ve got day jobs, let’s get on with it’.”
He also said that the weaker pound could encourage foreign companies to make takeover plays for UK targets with global assets.
He added that Brexit will lead to challenges, “those will lead to opportunities and some of those could lead to transactions. We’re not feeling downbeat at all about it”.
This story has been updated with additional bankers’ views on the prospects for activity