FT : US banks take $4.6bn revenue hit from equity raising drought

US banks take $4.6bn revenue hit from equity raising drought
Ukraine war, rate rises and poor post-listing performances result in harsh comedown from Spac boom

The biggest US investment banks have taken a $4.6bn revenue hit from the freeze in equity raisings because of recent market volatility, a sharp slowdown for Wall Street which raked in record profits from stock sales last year.

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Morgan Stanley, JPMorgan Chase, Bank of America, Goldman Sachs and Citigroup have generated a cumulative $645mn from equity capital market (ECM) fees so far this year, according to data provider Dealogic, compared with $5.3bn in the same period in 2021. Industry-wide ECM fees are down more than 75 per cent year on year at $2.7bn. 

The feast-to-famine swing underscores the unpredictable nature of investment banking, a crucial reason why large investors value these stocks at a discount to more predictable industries, often to the frustration of bank executives.

There was not a single traditional initial public offering in the US between February 17 and March 14, the longest drought outside of a holiday season since 2017, according to Dealogic data. One small company broke the streak with a $16mn listing on Tuesday, but bankers expect that it will be some time before larger deals return.

Volumes of follow-on share sales and convertible bond issuance have also slowed dramatically, and the dry spell is set to cause a sharp reduction in first-quarter revenues at banks that benefited from a deluge of deals early last year.


“The right advice [to companies] is to get ready and be nimble because windows may open and close in a much shorter timeframe than we’ve been used to in the last 12 to 18 months,” said Daniel Burton-Morgan, head of Americas syndicate for ECM at Bank of America.

Bankers were prepared for a slowdown in activity after a record-breaking 2021, not least because the first three months of last year were notable for the boom in IPOs of special purpose acquisition companies and that has since slowed dramatically.

Many nevertheless started the year optimistic about a strong pipeline of potential IPO candidates such as Reddit, Instacart and Stripe.

However, rising interest rate expectations, market volatility caused by the war in Ukraine, and dreadful post-listing performances by many of last year’s highest-profile listings, such as electric vehicle maker Rivian, have combined to put most activity on hold.

“People were probably thinking it might be down 30 to 50 per cent but I don’t think anybody had modelled down 75 per cent,” said Chris Kotowski, banks analyst at Oppenheimer & Co. 

Only one company — private equity firm TPG — has raised more than $250mn in an IPO this year, compared with 43 in the first 13 weeks of last year, excluding Spacs. The nine-week gap since that deal is the longest period without a $250mn IPO since 2016.

Several senior bankers stressed that there was a strong backlog of companies keen to raise capital, but said stock markets would need to calm down for a sustained period before activity could bounce back, particularly for IPOs which require a longer marketing period.

“We need more stability in the market for investors to feel comfortable,” said one senior ECM executive. “If we were so fortunate [as] to get positive news out of Ukraine, people are ready and poised to come to market, but nobody has a crystal ball right now to know when that’s going to happen.”

The downturn has caused US and European banks to tumble down global ECM league tables. Chinese banks account for six of the top 10 ECM bookrunners by proceeds so far this year, according to Refinitiv data, compared with just one at the same point last year.

FT : Russia and Ukraine edge towards agreement on key peace points, says Turkey

Russia and Ukraine edge towards agreement on key peace points, says Turkey
Fierce fighting continues in Mariupol as negotiators note ‘convergence’ on some issues

Russia and Ukraine “have almost reached agreement” on four critical points of a potential peace agreement, Turkey’s foreign minister said, as fierce fighting continued to devastate the key port city of Mariupol.

Mevlut Cavusoglu told Turkey’s pro-government Hurriyet newspaper that there was a growing “convergence” between Moscow and Kyiv after a bout of intense diplomacy over the past week.

“On important subjects, critical subjects, there is a convergence between the two sides,” Cavusoglu said. “Especially on the first four points we see that they have almost reached agreement.”

A possible agreement would require Russia to announce a ceasefire and withdraw its troops from Ukrainian territory to the positions they had been in when President Vladimir Putin launched a full-blown invasion of Ukraine on February 24.

Some issues would need to be agreed between Putin and Ukraine’s President Volodymyr Zelensky, Cavusoglu said, adding that the two leaders did not appear to have “a negative stance” on that idea in principle.

But Ukraine and its western allies are sceptical of Russia’s motives in negotiating a deal and fear Putin could be buying time to replenish Moscow’s forces and launch a new offensive.

Speaking to CNN on Sunday, Zelensky said talks were worth pursuing even if they had a “1 per cent chance of success” and warned that a failure of negotiations would risk “a third world war”.

“Russian forces have come to exterminate us, kill us. We have demonstrated the dignity of our people and our army, that we are able to strike back,” he said. “But unfortunately our dignity is not going to preserve lives. So I think that we have to use any format, any chance, in order to have the possibility of negotiating.”

Linda Thomas-Greenfield, US ambassador to the UN, accused Russia of failing to fully participate in the talks. “The negotiations seem to be one-sided,” she said. “The Russians have not leaned into any possibility for a negotiated and diplomatic solution.”

Mykhailo Podolyak, an adviser to Zelensky, said Russia had used “more destructive artillery”, including its new Kinzhal hypersonic missiles, against civilian areas.

Podolyak’s statement was the first confirmation from Ukraine that the Kremlin had deployed the missiles in combat for the first time this week.

Moscow claims it used the Kinzhal, which Russia says can travel at 10 times the speed of sound, twice in the past three days to destroy a fuel depot near Mykolayiv, a key city on the front in southern Ukraine, as well as to target a munitions storage facility in the country’s west.

Turkey, which is mediating in the talks alongside Israel, said Ukraine and Russia had made significant progress on Kyiv declaring neutrality and abandoning its drive for Nato membership, “demilitarising” Ukraine in exchange for collective security guarantees, what Russia calls “denazification”, and lifting restrictions on the use of Russian in Ukraine.

Even as negotiations progressed, Russian forces continued their intense assault of Mariupol in eastern Ukraine, whose status is a key sticking point in the talks, according to two people briefed on them.

Ukraine’s armed forces said on Sunday that “the situation in Mariupol is difficult: there is famine in the city, street fights, people are trying to leave the city on their own”. The Russian forces have cut off electricity, heat, and food supplies.

Anna Romanenko, a local journalist who has evacuated from Mariupol but is still in contact with sources there, said there was heavy fighting in the centre, with Russian tanks and armoured personnel carriers being attacked by Ukrainian government troops in and around Theatre Square, a prominent landmark.

“The front now runs straight through the city,” she said. Large parts of Mariupol, especially the left-bank district and some neighbourhoods in the north-west of the city, were fully in Russian hands, she said.

Russia is publicly sticking to the maximalist demands Putin made in the first days of the invasion, including vaguely defined calls to “demilitarise” and “denazify” Ukraine.

Moscow also wants Kyiv to recognise its annexation of Crimea in 2014 and the independence of two Russia-backed separatist territories in the eastern Donbas border region.

As its invasion has stalled, however, Russia has quietly dropped its vow to remove Zelensky and dialled down suggestions of carving up the country into Moscow-backed fiefdoms and a rump state.

Ukraine has ruled out making territorial concessions to Russia under any circumstances and has said negotiations on the areas seized by Moscow before this year would require separate talks between Zelensky and Putin.

Mariupol is a particularly difficult issue because it is part of the Ukrainian-held territory claimed by the separatists.

Putin has justified the invasion by claiming Russia is liberating Ukraine from Nazis, even though Zelensky is Jewish and far-right nationalist groups have little influence in the country.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: The 7.9% surge in total consumer prices last month from a year earlier marked a new 40-year high at a time when inflation-adjusted household incomes are falling at the fastest pace since the government began the data series in 1959.

Cover Story:
-The 7.9% surge in total consumer prices last month from a year earlier marked a new 40-year high at a time when inflation-adjusted household incomes are falling at the fastest pace since the government began the data series in 1959. But the reality is much worse, and it is probably going to worsen still as the economic effects of Russia’s invasion of Ukraine play out. When you strip out everything but essentials—which is the opposite of what economists and policy makers do when they exclude food and energy prices to calculate so-called core inflation—the average change in those basic items rose more than 16% last month from a year earlier.

Interview:
Barron’s interviews Louis-Vincent Gave, co-founder of Gavekal Research. Gave has been warning investors about a paradigm shift in the world order. Specifically, Gave says the assumptions underpinning financial assets need to be rethought due to a move toward a multipolar world and away from one dominated by the U.S. and the dollar. His message seems especially germane now, given Russia’s invasion of Ukraine, the West’s dramatic sanctions, and China’s attempts to support Russia without jeopardizing its economic ties with the West. His seventh book, Avoiding the Punch: Investing in Uncertain Times, published last year, provides a framework for helping investors to navigate a period of geopolitical competition, high stock market valuations, and low interest rates.

Tech Trader:
Since a disappointing earnings report in February, Meta’s stock has fallen 33%. Investors continue to debate whether the bad news is priced in. But no one really knows—these are foundational issues for Facebook. Investors are better off looking for a different way to play Meta. Shares of rival Twitter could be the answer. Meta’s biggest near-term issues stem from Apple’s new privacy policies, which restrict app tracking on iPhones and iPads. Meta said in February that it expected a $10 billion hit to 2022 revenue because of how those changes are hampering its direct response advertising business.

The Trader:
-Nike is expected to report a fiscal third-quarter profit of 71 cents a share after Monday’s close, down from 90 cents the previous year, on sales of $10.6 billion, up from $10.4 billion. The real problems could start with the fourth quarter, with some analysts—even the bullish ones—worrying that revenue estimates look high and expecting tepid 2023 guidance. They’ve been cutting their estimates and lowering their price targets, from $184.93 at the end of January to a current average of $168.55.
-These days, bad situations not getting worse count as good news. The Federal Reserve raised interest rates by a quarter of a percentage point, but at least it wasn’t a half-point hike, and the Fed didn’t start winding down its balance sheet, either. Russia’s invasion of Ukraine slogged on, but the fact that the two adversaries were talking seemed to lift investor spirits. Even China recognized that the panic in Chinese stocks was getting out of hand. On the Bright Side, Alibaba Group Holding, Baidu (BIDU), and JD.com soared 25%, 25%, and 36%, respectively, this past week, after losing more than a quarter of their values this year through March 14.
- With oil prices rising and falling dramatically, it can be hard to get a handle on oil stocks. Oil stocks have a lot to gain if crude prices can bounce back, and a lot to lose if they keep dropping. One strategy: Buy only the most and least volatile ones. That might seem like a strange way to bet on a very volatile energy market. Oil prices surged 45%, to $130/barrel, on March 6 from $89 on Feb. 10, the day before U.S. National Security Advisor Jake Sullivan said Russia would attack Ukraine—but they tumbled 27%, to $95, before jumping back to $103.

Features:
-Sanctions on Russia are upending global energy markets, pushing up crude oil above $100 a barrel and sending U.S. gasoline prices to an average $4.30 a gallon, up nearly 50% in the last year. It has also turned the energy sector into a superstar this year. Of the 11 sectors in the S&P 500, energy has been a standout, blowing past the rest of the market with a 32% gain, against a 7% decline in the S&P 500.
-Economists have long found what is known as the “motherhood penalty” for women who leave jobs, or cut back on work, to care for children. Besides losing pay while away from work or reducing hours, there can be substantial long-term financial sacrifices: lost opportunities for advancement, raises stunted because they build on low early-career salaries, and compromises in retirement since lower pay reduces Social Security, pensions, and the ability to save in 401(k)s and individual retirement accounts.

European Trader:
-As war rages on in Eastern Europe and stock markets swing with the latest developments, investors have to work harder to find buying opportunities. The European real estate sector could be one such place to look. The FTSE EPRA Nareit Developed Europe index, which tracks the performance of commercial real estate companies and real estate investment trusts (REITs) in Europe, has fallen 6.4% year to date compared with an 11% decline for the broader Stoxx 600 index. Shares of Capital & Counties Properties, a British REIT that owns prime real estate in central London’s Covent Garden, remain 9% below their January high, and analysts have an average price target of 1.95 pounds sterling ($2.55), implying a 16% upside from Thursday’s closing price.

Emerging Markets:
-Indian stocks got a boost after Narendra Modi’s party won a key state election March 10, setting up the modernizing prime minister for a third term, starting in 2024. The iShares MSCI India exchange-traded fund (ticker: INDA) has climbed 4%, while world markets gyrated on news out of Ukraine and China. Investors are cautious nevertheless. Indian stocks are still expensive despite a 13% correction from their peak last November. Surging prices for commodities imports may cut a full percentage point from economic growth this year. “The election was a welcome surprise,” says Nuno Fernandes, co-manager of the emerging wealth strategy at GW&K Investment Management. “We’ve still reduced some positions in India since starting last year at double weight.”
-Headwinds had battered Chinese markets for months—Covid-19 outbreaks, US delisting concerns, crackdowns on a range of domestic firms, an imploding property market, and the ongoing invasion of Ukraine by Beijing’s ally Russia. Chinese authorities had enough. On Wednesday, they convened their top economic policy group, the Financial Stability and Development Committee, overseen by China’s cabinet, the State Council. What emerged were broad-stroke promises of support for China’s faltering economy.

Commodities:
-Commodity prices have pulled back recently. They look like they’re just taking a pause—and are likely to resume rising soon. The Bloomberg Commodity Index (BCOM), home to oil, gas, industrial metals such as copper and aluminum, and grains such as soybeans and wheat, fell as much as 9% from a multiyear high of $132.63 hit on March 8. Driving the drawdown has been optimism that a peace deal between Russia and Ukraine could be reached soon, which would reduce the likelihood of more restrictions on Russian commodities, freeing up the global supply.

Streetwise:
Jack Hough ponders on the war in Ukraine and the higher cybersecurity demand that the conflict has generated. As the Russian economy crumbles, state-linked hackers are likely to shift from ransomware crimes to attacks meant to maximize destruction and societal upheaval, the CEO of a top cybersecurity company tells me. Yes, that’s a bit like an umbrella salesman saying it’s getting cloudy. But in this case, the clouds really are dark gray rumblers, and more to the point for investors, umbrella sales are shooting higher.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-After weeks of Russian troops’ encircling and shelling the strategic coastal city of Mariupol, tank battles raged on its city streets on Saturday. In eastern and southern Ukraine, millions have fled or are cut off from humanitarian aid.
-Navigating between aiding Ukraine and avoiding an escalation with Moscow has led to a tangle of decisions and sometimes tortured distinctions over weapons and other elements of policy.
-President Biden’s call with Xi Jinping was the culmination of an effort to cut off Russian appeals to China for help.
Some fleeing Ukrainians are finding refuge in the U.S. with the help of private sponsors.
-Georgia was invaded by Russia in 2008. But its government is wary of condemning the war in Ukraine.
-An aircraft crash during a NATO training exercise in Norway killed four U.S. Marines, the police said.
-Ukraine is wrecking Russian tanks with missiles that weigh half as much as a Javelin — each one a gift from Britain.
-Another Covid surge may be coming. Are we ready for it? “We’ve been wearing rose-colored glasses instead of correcting our vision,” one scientist said.
-Moratoriums have expired on turning off utilities for customers who have failed to pay their bills, prompting fears that thousands could be left in the dark.
-The Turkish background of Mehmet Oz, the celebrity surgeon running for the Senate, has emerged as a focus of attacks in Pennsylvania’s G.O.P. primary.
-A New York City clean-air program lets citizens report idling commercial vehicles in exchange for a cut of the fines. Some drivers have responded with fists.
-As President Emmanuel Macron addresses his country’s colonial history, the past is pervading the messaging of right-wing candidates ahead of April’s election.
-As suicide rates have increased, the military has struggled to meet the mental health needs of troops, lawmakers and service members say.

THE FINANCIAL TIMES
-As suicide rates have increased, the military has struggled to meet the mental health needs of troops, lawmakers and service members say.
-This was supposed to be the year the world economy recovered from the shock of Covid-19. By the end of 2022, official forecasters expected the US, European and Chinese economies almost to have returned to the paths they were cruising along before the pandemic. Other emerging economies were lagging behind, but they also expected to be growing at rapid rates and slowly getting back to normal.
-This was supposed to be the year the world economy recovered from the shock of Covid-19. By the end of 2022, official forecasters expected the US, European and Chinese economies almost to have returned to the paths they were cruising along before the pandemic. Other emerging economies were lagging behind, but they also expected to be growing at rapid rates and slowly getting back to normal.
-Renewed anxieties about global supply shortages are pushing oil prices higher again, the latest sharp moves in three weeks of extraordinary market volatility since Vladimir Putin ordered Russian tanks into Ukraine.
-It was a plan hatched in haste on the second day of the invasion. Ukraine’s digital transformation minister Mykhailo Fedorov turned to his deputy, instructing him to set up official government wallets that could accept payments in cryptocurrency.
-Bill Gross, the influential investor, has warned that even though the Federal Reserve started raising rates this week the US central bank will be unable to push through a planned series of further increases because doing so would “crack the economy”.
-They landed with a boom, scooping up trophy properties in some of Manhattan’s priciest locations. Now the Russians appear to be leaving with a whisper. Several have inquired with brokers in recent days about selling multimillion-dollar Manhattan properties as they try to liquidate assets before they are caught in a web of US sanctions. Most are doing so through discreet “whisper” listings with trusted brokers, as opposed to public sales, in order to minimize publicity.
-The British Virgin Islands have weathered some devastating storms. When Hurricane Irma lashed the territory with 220mph winds in 2017, five people were killed and more than 80 per cent of the buildings damaged.

THE NEW YORK POST
Lieutenant-General Andrey Mordvichev, commander of the 8th army of the southern military district, was killed when armed forces destroyed a command post at an airfield in Kherson, a port city in southern Ukraine, according to Ukrainian officials.
-Russia unleashed nuclear-capable hypersonic missiles for the first time ever in combat, obliterating an ammunition depot in western Ukraine, its defense ministry said Saturday, as embattled President Volodymyr Zelensky made an urgent plea for “meaningful and fair” peace talks as the strategic port city of Mariupol was on the precipice of falling to the invaders.
-The US Commerce Department on Friday will move to effectively ground 100 airplanes that have recently flown to Russia and are believed to violate US export controls, including a plane used by Russian businessman Roman Abramovich, officials told Reuters.
-We’re currently the world’s top producer of crude oil, gasoline’s raw ingredient, and generate more crude than we consume. We also sell more of it overseas than we buy from foreign companies. Yet we still rely heavily on imported oil.
That’s because our wells are located far from the Northeast and West Coast, where most of our gasoline is consumed, and we don’t have the pipelines to transport it.