Feast for famine
As undertakers busily process Covid-19 fatalities, underwriters are having their day in the sun. The top 10 banks have raked in $3.5 billion globally in fees from selling stock in the second quarter, according to Dealogic. That’s more than double the first quarter’s take and nearly 40% more than they harvested a year ago. They have governments and central banks, which are pumping money into the financial system to combat the economic impact of the virus, to thank for the bonanza.
Big investors can’t get enough stock. Companies including ZoomInfo Technologies, Vroom, Warner Music, and JDE Peet’s helped account for some $250 billion in global offerings of equity instruments so far in the second quarter. Ordinary punters are pitching in too: Chinese video-game publisher NetEase said the retail tranche of its Hong Kong secondary listing received orders for more than 360 times the number of shares offered. Rental-car company Hertz Global received approval to sell new shares to investors even though it’s navigating bankruptcy – a rarity.
Goldman Sachs is the lead equities hawker, raking in $660 million in the quarter so far, with JPMorgan nipping at its heels, says Dealogic. Morgan Stanley is just behind them. But even Bank of America’s investment bankers, who are better known for flogging debt deals, are feeling the flow. Their fees are nearly $475 million so far in the second quarter, far above each quarter last year.
Why the exuberance? Even though U.S. unemployment hovers around 13%, the S&P 500 Index price has rebounded. Its price-to-earnings ratio is roughly 26 times, nearly a fifth higher than a year ago. Equity is also far less restrictive than debt. As companies see earnings decline significantly, flexibility is key. That’s why re-equitizing balance sheets will continue. On Monday Royalty Pharma priced a $2.2 billion offering, the second-largest pharmaceutical listing ever.
But bankers have taxpayers to thank, too. Central banks and governments have pumped more than $15 trillion as of early May into markets globally, according to Reuters, creating what Bank of America analyst Michael Hartnett calls “fake markets.” With U.S. Treasury bonds offering just 0.7% interest and the Federal Reserve squawking like a dove, the search for returns in riskier corners will continue. That gives companies whose shares might otherwise be undeserving a window to hit up stock investors.
For equity capital market bankers, life is good.