The past 12 months have been arduous. Once again, global capital markets were dominated by the same relatively small set of inter-locking issues that commanded attention in the previous year. In fact, a quick scan of the foreword to IFR’s 2010 Review of the Year suggests little has changed in the intervening period.
The European sovereign debt crisis, the stability of the banking sector and global financial regulation continued to be the over-arching industry issues financing professionals had to contend with. Of course, the gloomy world economic outlook only served to curtail any notion of being able quickly to grow out of trouble. As related sub-sets to these macro issues bank capital, deleveraging, management succession, and bank restructuring all played their part in defining the year.
The second half of 2011 was particularly stressful and occasionally miserable, with the eurozone crisis casting a shadow of fear over capital markets across the world.
And yet, despite capital markets being shut down for long periods as volatility in European government bond yields consigned investors to the sidelines, the gross level of financing across debt, equity and loan capital markets was marginally higher than in 2010, reaching almost US$8.5trn between January and mid-December.
That is truly remarkable – and a testament to an industry staffed by creative and driven people.
M&A activity was buoyant, too, rising by more than 12% year on year to US$2.44trn.
The resulting higher investment banking revenues helped offset the impact of dramatically lower trading revenues caused by the lack of buy-side activity. But they couldn’t neutralise the overall impact; banks reported dreadful earnings in the third quarter, with some of the world’s major banks reporting losses in their IB divisions.
Generally speaking, developments in the banking sector matched the sovereign crisis for drama. Beyond earnings, the issue of capital – how much, what kind and by when – raged all year. The “too big to fail” capital supplement was introduced, stress tests were carried out and expanded; various jurisdictions introduced framework blueprints; while Basel III and CRD 4 moved forward.
Higher levels of core capital, combined with a more expensive operating environment, are already starting to have an impact on bank strategy. Deleveraging, either as an alternative to capital-raising or as a component of strategic business reviews, became the story of the back-end of 2011. But it is far from clear what the end-game is here. Politicians are putting intense pressure on their banks not to delever in order to lessen long-term damage on real economies.
Banks and companies that won the awards presented in this Review of the Year should be congratulated for navigating the pitfalls of the past year with such style. It is always more difficult to win awards in tough years than in years where everything is rising. So congratulations to our winners, but commendations, too, to all market professionals for making the year so enthralling.