Capital Markets Slack Off, But Fees Hold

The equity capital markets were hit the hardest, particularly in the US.

It’s been a rough start to the year for many bankers, as deal volumes collapsed in many markets. But the news hasn’t been all bad.

The equity capital markets were hit the hardest, particularly in the US. Initial public offering (IPO) activity in the US had its weakest first quarter in six years. According to Refinitiv data, it was down 95% in the first quarter of 2022 compared to the same period last year, as just 18 offerings raised a paltry $2.1 billion. In the US, overall equity capital market (ECM) activity fell by 86%. ECM in the Asia-Pacific region posted the best relative performance, declining by only 41%. Globally, IPOs were down 62% and ECM activity by two-thirds.

The news was better, though still downbeat, for bonds, with global activity down 7%. High yield debt issuance fell 72% over the first quarter, while emerging markets saw 38% less action. Local currency debt in Asia was the sole bright spot, rising 31% for the quarter.

Mergers and acquisitions (M&A) emerged relatively unscathed, with fees collected globally up 7% in the first quarter, according to Dealogic. But the trend obscures sharp regional differences: Fees crept up a measly 2% in the US, but jumped by 205% in Australasia and by 121% in the Middle East and Africa. Asia, excluding Japan, dragged down the field, with M&A fees falling 4%.

Admittedly, the first quarter of 2021 was a tough comparable period. The SPAC boom was in full swing, and central banks globally—including the Federal Reserve—were busy pumping liquidity into the economy.

Adding to uncertainty in recent months are rising interest rate expectations and market concern over the war in Ukraine. Weak stock market performance, after a strong 2021, put a damper on fund raising. Poor post-listing performance hasn’t helped. The Renaissance Capital IPO Index for the US market, tracking issues for two years from their floats, is down by 42.9% over the past 12 months, while the S&P 500 is up 0.21%.