LSEG data illustrate that the dealflow that keeps those in the City (not to mention financial commentators) in work wasn’t as bad in 2024 as it might have appeared, says Rupak Ghose Gilt yields are rising sharply; 2024 was a terrible year for UK IPOs; UK equity funds have suffered years of outflows; valuations have hit rock bottom. The world is wondering if the City of London has fallen. But an examination of LSEG deal and fee data for 2024 shows the UK performing in line with – if not better than – peers. There are good reasons to worry about the health of the City – especially as there can be a lag effect from a sustained period of low valuation multiples. But context matters. Let’s look at the numbers. In 2024, UK investment banking fees were up 23% year over year, which is better than the 19% for Europe as a whole and 14% globally. Despite the rampant US stock market, North American investment banking fees were up by a similar percentage, 24%. And this isn’t just a one-year performance. In 2023, UK investment banking revenues were down 5% compared with 3% lower for Europe overall, 11% down for North America and 7% lower globally. Similarly in 2022, UK investment banking revenues were down 41% from an extraordinarily busy 2021 – again within the range of 34% lower for Europe overall, 40% down for North America and 33% lower globally. Agonising The most obvious contrast between the headlines and data comes in equity capital markets where there has been – quite reasonably – much agonising over the significant downturn of IPO volume. There were only four IPOs of note – though at least one more than in 2023 – with listings hit by the UK market’s low valuations. But that hasn’t stopped the UK being one of the busiest arenas in the world for follow-on offerings. In fact, UK ECM volume increased by 39% on the year, well ahead of 7% for Europe and globally. Only the US came anywhere near the UK’s ECM volume growth. Yes, the UK lagged behind continental Europe in IPOs but more than 80% of European ECM volume came from follow-ons and convertible bonds. If UK stock markets are so broken relative to other markets, why were they able to see this kind of activity? Here’s a telling fact: JP Morgan’s league table share of UK ECM issuance at US$6.7bn is only just behind issuance in France and Italy, both a little over US$7bn. It’s true there was some lumpiness to this, with more than US$9bn raised in National Grid's rights issue and more than US$6bn from Haleon selldowns. Then again, the same could be said elsewhere – the jumbo Boeing fundraising in the US or a few large IPOs across continental Europe, for example. Value add It’s a similar story when it comes to mergers and acquisitions. In fact, in this case the UK’s low valuations have helped. UK-announced M&A volumes in 2024 increased by 51%, well ahead of the 22% increase for the whole of Europe and 10% globally. Of course, very little of this has been homegrown companies getting bigger and was instead driven by the low valuation of the UK market attracting corporate buyers particularly from the US and private equity. At least for UK M&A bankers and lawyers, the good times are likely to continue. UK DCM volumes also had a stellar year. The 48% increase was ahead of 19% for Europe and 20% globally. Much of this delta is high government bond issuance and M&A-driven refinancing, but underlying corporate bond issuance trends in the UK, including the large financial institutions segment, have been healthy. Zooming out Let’s look at the bigger picture. Is the City punching below its weight relative to other financial centres as the IPO slump suggests? Much of the City’s woes are linked to the UK’s consistent economic underperformance versus the US, though it’s hardly alone there. And yet UK investment banking is roughly the same size as US

Italy secured record orders of €270bn for its dual-tranche deal on Wednesday in the clearest display yet of the effect that heightened yields are having on the SSA market. It was the biggest book ever for an overall transaction, according to IFR data. Euro SSA deals had already reaped the benefits of spiralling yields in the first few days of the year, with comfortably subscribed deals. But Italy's €18bn transaction – its biggest non-retail publicly syndicated offering – was the most striking display yet of just how much cash is chasing the attractive levels on offer. A €13bn 10-year tranche, which priced at a yield of 3.733%, got about €140bn of interest, the biggest book for any sovereign euro tranche, according to IFR data. Only the European Union has had more orders for a single tranche – €145bn in October 2020. Italy's €5bn no-grow 20-year green bond, which landed at 4.181%, got roughly €130bn of orders, which is the third biggest for a euro government bond tranche. “So far in 2025, we are already seeing a heightened level of demand across euro new issues and that’s in a year when the net cash supply in EGBs is the biggest it has ever been,” said Alex Barnes, head of global SSA syndicate at Citigroup, one of Italy's lead banks. Certainly, the primary market provides the best avenue for investors to deploy cash. "There's not that much paper out there and you've got all these good reasons to buy," said a second banker, referring to yields and spreads versus mid-swaps. "So it is pretty clear that you have to come to primary [to secure bonds]." A third banker said the deal "ticks all the boxes. There's a bit of duration, reasonable yield and relative [political] stability". That investors were chasing yield on Italy was self-evident, especially as the sovereign has underperformed versus core European governments, such as France and Germany, over the past month. The spread between 10-year OATs and 10-year BTPs is marginally wider than a month ago, at 33bp as opposed to 30bp. The underperformance versus Bunds is greater. On December 11, the spread between Germany and Italy was 106bp, according LSEG data, and as of Friday it was nearly 118bp. While Italy (Baa3/BBB/BBB/BBBH/BBB+) enjoys much greater political stability than either France or Germany at the moment, possibly giving the perception that it is currently a safer bet, the very issue that worried investors only a couple of years ago, the level of its public debt, is still pressing. Its gross public debt to GDP is forecast to grow to 142.1% by 2026, according to an IMF report in July, from 137.3% in 2023. France's debt levels are also forecast to worsen, but will still be better than Italy's, the IMF said. France's 2023 gross debt to GDP was 109.9% in 2023 and is projected to reach 113.5% by 2026. Tight is right Leads opened books on the 10-year tranche at 9bp area over BTPs, and the scale of the interest allowed Italy to tighten to plus 7bp. On the 20-year green note, leads tightened to plus 5bp from 8bp area over. Barnes said the 10-year offered buyers 2bp of new issue concession. He added that by Thursday morning, it was trading flat to the plus 5bp fair value estimate. “For a €13bn tranche, that’s a pretty impressive reaction and a vindication of the strength of the deal,” he said. Other bankers put the 10-year premium at 2bp–3bp. For the 20-year green bond, Barnes said it offered 1bp of premium versus Italy's conventional curve. He saw even more tightening for that line. "That bond has gone on to trade at flat to the reference BTP,” he said, meaning the bond was trading 4bp through fair value. At pricing, other bankers put the 20-year premium at zero to 1bp. Italy's mandate announcement on Tuesday had already led the 10-year point of its curve to widen by 4.5bp versus Bunds by the time books opened on Wednesday. Fast money Huge order books like Italy's, while he

French banks played a starring role in the seasonal deluge of new year FIG supply last week, providing convincing answers to questions over the level of demand they can expect in 2025. French banks have been by far the most active of European FIG issuers since the turn of the year, contributing 18 of the 43 tranches of major currency debt sold by the region's lenders as of Friday. Heading into 2025, market participants said there were questions over how French banks – which include some of the most frequent funders in the FIG sector – would be received by investors given the political uncertainty that has surrounded the country since summer and the impact that will have on its fiscal situation. Such concerns have hit France's borrowing costs: in the last week, Portugal and Slovenia, two countries caught up in the eurozone crisis just over a decade ago, priced inside France, as did Swiss food giant Nestle. French banks have underperformed European peers and, in December, Moody's downgraded several of its lenders after also cutting the sovereign's rating. "It was an unknown, in terms of how much the French domestic investor base would support issuers that they are already long of, how willing and able they are, and [whether there would be] an entrance fee for French banks relative to others," said a syndicate banker. Any fears over demand were quickly assuaged, however. Four of the five largest order books for euro unsecured FIG trades last week were for French banks. "The one big worry at the beginning of the year was French banks, but they are showing across euros and US dollars that they have plenty of access to demand and they're actually outperforming," said a second syndicate banker. In euros, several French offerings saw demand peak above €5bn. In the senior market, for example, BNP Paribas pulled in more than €5.75bn for a €1.75bn six-year non-call five senior non-preferred on Wednesday priced at 120bp, while Societe Generale attracted more than €4.8bn for a €1bn July 2031 non-call 2030 social SNP the day before at 145bp. In capital, BPCE pulled in more than €6.2bn of final demand for a €750m July 2035 non-call 2030 Tier 2 on Tuesday priced at 195bp. Subsequent Tier 2s from BFCM and BNPP priced tighter – the former on Wednesday landing a €1.25bn 10-year non-call five at 175bp and the latter on Thursday with a €1bn July 2035 non-call 2030 at 180bp – but final demand still came in above €3.6bn and €2.6bn, respectively. In the US dollar market, BPCE garnered US$5.4bn of demand for an US$800m 21-year non-call 20 Tier 2 on Tuesday alongside two tranches of SNP debt, while BNPP and Credit Agricole have raised US$3.5bn and US$2.25bn of SNP paper, respectively, in the Yankee market. All about the spread Bankers said French investors are still supporting the country's banks but the order books showed foreign investors are also turning out. Some were blunt in their assessment of why French paper has held investor attention. "It is driven by the fact that France has underperformed a lot of other core European names – the Dutch, the Belgians," said a third syndicate banker who worked on several of last week's deals. "Because it's cheap is the real answer." However, bankers highlighted that French banks have not had to substantially pay up over their curves. BNPP, for example, was deemed to have paid no more than 5bp of concession across any of its four major currency deals, while some, such as SG's euro senior, landed inside fair value estimates. "I would focus much more on the fact they are achieving relatively low new issue premiums," said the first syndicate banker, who said the market recognises that the underlying strength of French banks is unaffected. In other markets, French banks have been well received. An £800m July 2032 non-call 2031 SNP from Credit Agricole on Monday attracted more than £2.05bn of demand, the largest o

A poor start to the year for Chinese equities was compounded last week by a US decision to put two Chinese technology giants on a military blacklist, adding uncertainty to capital market transactions down the road. The US Department of Defense on Monday added tech giant Tencent Holdings and electric vehicle battery maker Contemporary Amperex Technology, a major supplier to Tesla, to a blacklist for alleged links to China’s military. The news came after Chinese markets had already stumbled into the new year, with stocks, bond yields and the renminbi all dipping on concerns over lingering economic weakness in China and Donald Trump's expected tariffs. Shares in Hong Kong-listed Tencent plunged 7.3% to HK$379.60 on Tuesday while Shenzhen-listed CATL dropped 2.8% to Rmb249.45. Overall, Chinese stocks were down almost 4% year to date as of Thursday. The blacklisting highlights the risk Chinese companies face amid escalating political tensions between China and the US, less than two weeks before president-elect Trump takes office. The power struggle has cast a shadow over China deal activity, which had seen signs of revival in the past few months after Beijing introduced a spate of economic stimulus measures. “This is definitely not good news at the start of the year. Investors would wonder what more Trump will do to Chinese companies once he takes office,” said an ECM banker. The blacklisting is particularly awkward for CATL, which is planning to list in Hong Kong in the first half, subject to regulatory approvals, in a deal that could raise about US$5bn. As the world’s top EV battery maker, CATL is expected to draw strong interest from global investors for its Hong Kong listing but some US funds may now stay clear of the deal. Whether US banks can work on the transaction is also in doubt. According to people with knowledge of the matter, CATL recently held a beauty contest after which China Securities International, CICC, Bank of America and JP Morgan were seen as frontrunners. The blacklisting came as a blow to the US banks, which are now debating internally whether they can work on the transaction, said the people. “It’s not a sanction list so in theory we can still work with them. No one would want to miss a US$5bn transaction,” said a person familiar with the situation. “But the risk is we are not sure how the situation will evolve in the next few months. If the company gets added to the sanction list later, we will have to walk away from the transaction,” said the person. CATL is also mulling the implications. “They may want to add a European bank to play safe,” said another ECM banker. Inclusion on the Pentagon's list does not carry broad economic consequences as it relates only to US defence procurement. The list, which contains 134 Chinese companies, could serve as a reference for other US government departments, which may lead to possible future sanctions and restrictions including an investment ban. Tencent and CATL derive around 90% and 70% of their respective revenues from China, according to a research note from CreditSights. For its part, Tencent has no major deals planned in the short term. US banks “may hope Tencent will be removed from the list before the next deal comes”, said the second ECM banker. 'Clearly a mistake' The Pentagon on Monday removed six companies it said no longer met the requirements for the designation, including AI firm Beijing Megvii Technology, which was added to the list in January last year. Tencent said in a statement that its inclusion was "clearly a mistake. We are not a military company or supplier. Unlike sanctions or export controls, this listing has no impact on our business". CATL also said it was a mistake as the company has never engaged in any military-related business or activities. "It does not restrict CATL from conducting business with entities other than DoD and is expected to have no substantiall

There was an unprecedented spree of hybrid mandates last week from issuers in emerging Europe, Middle East and Africa encompassing financial, corporate and SSA issuers even as Treasury yields continued to surge higher. Historically, issuance of corporate hybrids or bank AT1s has come to a stop when rates have jumped because of these securities' duration risk. Issuers, too, are put off because pricing levels become unappealing. But even though the yield on the 10-year Treasury is 50bp–55bp higher than a month ago, and hit 4.7% last week for the first time since late April, it's a different story now. For issuers, hybrids are still pricing at incredibly tight levels relative to their senior curves. "It's interesting that senior/subordinated spreads have held up even as rates have gone higher," said a debt capital markets banker. Investors, meanwhile, are keen to lock in attractive coupons ahead of any further central bank cuts, even if there are short-term risks to performance. "The demand for hybrids has been phenomenal since central banks hit pause on interest rate hikes. Corporate hybrids remain the optimal instrument to improve portfolios’ yield without taking on more credit risk," said Robin Usson, senior research analyst at Neuberger Berman.Stand out In the euro investment-grade market three hybrids were sold last week even though Bunds were also selling off, while in the financials sector there were several euro and US dollar AT1s. But it was the deals in EEMEA that stood out. Abu Dhabi state-owned company Aldar Properties and Turkish lender Isbank priced hybrid debt on Wednesday, while multilateral development bank Africa Finance Corp met investors and will seek to complete its hybrid this week. The AFC deal would be only the second public hybrid by a multilateral development bank following last year's issuance from African Development Bank. AFC is planning a benchmark-size US dollar perpetual non-call 5.25-year bond. Bankers will be hoping for a smoother passage than AfDB's deal, which priced four months after the mandate was announced. That was partly down to the broader market backdrop at the time, but also because identifying the investor base for the hybrid wasn't straightforward. Certainly, it wasn't the multilateral's core rates buyer base in the senior market. Instead, the deal's buyers turned out to be hedge funds, EM accounts and crossover AT1 investors. For AFC, however, it will be different because it is considered an EM issuer as opposed to an SSA, and so the buyer base is likely to be the same investors that take its senior paper. "There will be a few differences but we're marketing this very much to the same investor base that looks at their senior," said a banker at one of the leads. However, he also said it was a more difficult trade than AfDB's in terms of the "nuts and bolts" of the credit and the pricing. "What makes it more challenging is pinpointing the senior-sub spread. I'm expecting a reasonably broad range [in investor feedback]," he said. AfDB priced its hybrid 134bp back of its senior curve on a Treasury spread basis. It remains to be seen how tight to its senior curve AFC is able to land its hybrid. It issued October 2029s a few months ago, which are bid at 5.88%, according to LSEG data. Investors are likely to compare the yield on offer to other West African sovereigns, which trade between 7% and 10%. Two factors supporting the trade are the hybrid instrument's investment-grade rating of Baa3 from Moody's – underpinned by AFC's preferred creditor status – and an anchor order of US$150m from a development finance institution.Aldar, hey! Aldar's debut hybrid came as a US$1bn 30.25-year non-call 7.25 conventional bond. Aldar had only ever issued sukuk before. Hybrids from Gulf-based corporates are rare, partly because of the cost of issuance but also because many are state-owned and can call upon their shareholders. Aldar is too, with its biggest shareholder being Abu D