bluebay2014
The rapid rise in interest rates around the world has weighed on investment banking this year as central banks in many advanced economies have removed the punch. Higher borrowing costs in 2022 have placed kibosh in the boom time of 2021.
Equity market release $582B (as of December 19) has not even surpassed the $733B released in the second half of 2021, according to Dealogic data. debt capital market provided $6.3 trillion year-to-date is down 30% from a year ago. Global Mergers & Acquisitions value $3.6 trillion is down nearly 39% from 2021.
Leveraged financial issuance totaled $444 billion year-to-date compared with a record high of $1.58 trillion raised in 2021. Lending capital markets, however, remained firm in year, up $4.6 trillion from the start of the year, in line with the 10-year average.
During the year, JPMorgan Chase (NYSE:JPM) pulled in the highest investment banking revenue of the year at $5.86 billion, holding the top spot. It also topped the charts for debt capital markets, equity markets and syndicated lending revenue. Wall Street rival Goldman Sachs (NYSE:GS) takes the top spot in global M&A revenue, with just under $4 billion.
Over the past year, the top five banks in the investment bank rankings see their stock fall: JP Morgan (JPM), -17%, Goldman Sachs (GS) -9.9%, Morgan Stanley (NYSE:MISS) -13%, Bank of America (NYSE:NORTH) -27% and Citigroup (NYSE:OLD) -26%. But Goldman and Morgan Stanley fell less than the S&P 500’s 18% drop.
As for the outlook for 2023, here are some Dealogic observations:
As for M&A, bankers report ample private equity and cash on the company’s balance sheet that could help deals recover in 2023. Additionally, the gap Persistent valuations that held back operations in 2022 have shrunk, Dealogic said. The company’s Insights team says that due to weak valuations, “many companies are choosing to sell shares instead of all.”
Negative headlines in the crypto sector could trigger M&A activity as companies face low valuations and a difficult fundraising environment, Written Rachel Stone of Mergermarket. “Companies have to trade now,” Adam Sullivan, managing director at XMS Capital Partners told Mergermarket. “Companies are running out of cash.”
There is some hope of a recovery in equity issues next year. “There is high hope that the period of investors entering the ECM following the better-than-expected inflation report in the US will continue into 2023 and the global rate hike cycle,” Dealogic said. Demand will peak in the middle of next year.”
James Manson-Bhar, head of EMEA ECM organization at Morgan Stanley said
In leveraged finance, a flurry of deals in December could start the year on a positive note. However, “uncertainties around inflation, interest rates and the economy are expected to remain challenging for leveraged financial markets next year,” wrote Dealogic’s Jelena Cvejic.
With a recession expected next year, much of the volume of global lending will depend on how well central banks “navigate these waters of uncertainty and their ability to guide their economy to land as light as possible,” wrote Dealogic’s Ben Watson.
With many factors hurting the market in 2022 (Russia-Ukraine war, China real estate crisis, Covid) still a factor in 2023, the market is likely to continue to fluctuate and rate defaults are expected to increase. Moody’s forecasts the global default rate will increase from 2.6% to 4.9%. Meanwhile, S&P estimates the U.S. default rate will increase. 3.75% from 1.6% in 2022 and Europe’s default rate rises to 3.25% from 1.4%.
For stocks, strategists expect very little from the S&P in ’23, but SA readers still like stocks
