Some Bankers Are Doing Even Worse Than in 2009

(Bloomberg Opinion) -- It may not feel like it, but some corners of banking are suffering as badly as they did during the depths of the financial crisis. Global volumes of initial public offerings and share placings in January and February have been nearly 60 percent lower than in the same period last year. The numbers are worse than the first two months of 2009. If activity doesn’t pick up soon, it would be worrying evidence of the fragility of investor sentiment.

The hope is that the lull is temporary, and technical. The government shutdown in Washington has gummed up U.S. IPOs. Uncertainty over the U.K.’s future relationship with Europe just drags on. And the December stock-market wobble probably killed off deals that were being planned for the window that traditionally opens between January and the start of the full-year earnings season in late February.

Hence the doubts over whether General Electric Co. will go ahead with an IPO of its healthcare business, especially when it managed to agree the sale of a big part of it to Danaher Corp. this week for $21 billion.

If short-term factors really are to blame, expect a rapid bounce back in activity. The coming weeks may bring clarity over the shape of Brexit. Equity markets have recovered and the VIX and VSTOXX indices of stock volatility are hovering at or below the 15 mark, which is commonly seen as the line between favorable and unfavorable conditions.

If investors want to re-weight their portfolios toward equities, and companies want to get things done, a healthy market in stock issuance should return. With the Easter holidays falling three weeks later than in 2018, there’s potentially a good-sized window of opportunity. This week has already brought a bank capital hike and retail rights offer in the U.K.

The performance of the largest U.S. IPOs has generally been good. Big names like Pinterest Inc. and Levi Strauss & Co. appear to be ready to take the plunge.

But a broad pickup is certainly not a given. In Europe, recent IPOs haven’t been universally encouraging for would-be buyers. Shares in British lender Funding Circle Holdings Plc have fallen 20 percent and those of luxury carmaker Aston Martin Lagonda Holdings Plc about 30 percent since they came to market in September and October respectively. Equities closed down last year after an extended bull run. A bounce in early 2019 doesn’t change the fact that the market is looking tired. That may tilt investors into preferring familiar stocks with an established track record rather than punting on unknown newcomers.

A more selective market could be a good thing overall. It means only the higher quality IPOs will seek listings. Assuming they’re more likely to perform, that will open the market for others.

But the fact remains that the level of activity so far in 2019 is ominously low. Even with markets stabilizing, there’s been no sizeable M&A financing. Beware of assuming that that what goes down, must come back up.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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