US Review of the Year 2012
2012 was a year of scandal in the investment-banking industry. From interest-rate rigging to allegations of money-laundering and the massive trading losses of JP Morgan’s “London Whale”, it seemed as if nothing that bankers did went right at all.
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But that wasn’t the whole story. It was also year of tremendous success. The US regained its position as the dominant player in the global capital markets, winning 57% of the global fee pool in the year to the end of October, compared with 24% for EMEA and 19% for Asia-Pacific. As recently as 2009, the breakdown was 46% for the US, 33% for EMEA and 21% for Asia.
The credit markets were the main focus of activity as quantitative easing kept interest rates low, allowing issuers to repeatedly reset the low-coupon record tables. Investors bought record amounts of corporate debt up and down the credit spectrum.
The Abbott Labs pharmaceuticals spinoff AbbVie priced the biggest ever dollar-denominated debt issue in the US high-grade market in November, raising US$14.7bn. The six-part deal helped set the single-day issuance record of US$22bn.
In a remarkable feat that few believed possible, AIG completed its transformation from government-controlled basket-case to fully functioning financial services player.
Structured finance products saw their strongest post-crisis performance yet. Consumer ABS, particularly auto-backed deals, became an effective cash surrogate for investors looking to park their money somewhere that offered higher yields than Treasuries, but with a similar level of safety.
Structured finance volume topped US$190bn – that figure was just US$126bn in 2011 – and benchmark Triple A rated sectors, such as autos and credit cards, attracted robust demand and delivered tighter spreads. While prime autos set record low all-in yields, investors turned to so-called off-the-run sectors, including deals backed by timeshare properties, dealer floorplans, rental fleets and even private student loans.
Other securitised products, such as CLOs and CMBS, also hit their highest volumes since the crisis. CLO issuance for the year is approaching US$50bn, after only US$13bn in 2011. Private-label CMBS issuance is at the US$40bn mark, well beyond US$29bn last year.
Latin America also had a stellar year, with a surge in debt volumes from smaller Andean countries such as Peru, Colombia and Chile, as well as the region’s new favourite, Mexico, offsetting the slowdown in Brazil.
A flood of inflows into emerging market debt funds helped support cross-border bond volumes that are expected to exceed US$100bn by most estimates, a new record for the region.
More and more pension funds and insurance companies from the US and Europe either want to participate in an asset class that has outperformed most others in 2012, or have already committed to long-term bets on the region.
The depth of local market participation has also increased, opening up another important pocket of liquidity and demand for borrowers. Between insurance companies, pension funds and other asset managers in Chile, Colombia and Peru alone, investors manage between US$500bn–$600bn.
Many of these trends are exemplified by the winners selected here in IFR’s Americas Review of the Year. They pay testament to a year that has been full of daunting challenges but also, for those who have been savvy about the capital markets, consistently rewarding.