Investors, flush with cash and eager to get their hands on anything with a decent return, have flooded almost every asset class with demand. The influx of bids has brought many parts of the capital markets alive, not least the high-yield market, where French telecoms operator Numericable attracted a phenomenal US$100bn of orders for its record-breaking US$10.9bn bond.
Across the credit spectrum, the story has been the same. Once shunned European sovereigns such as Greece and Cyprus were welcomed back into the capital markets – the latter just a year after taking a humiliating bailout from its European partners and the International Monetary Fund – while Spain attracted an unprecedented €40bn order book for January’s €10bn 10-year issue, the country’s biggest ever.
In the investment-grade space, 2014 boasted three of the biggest deals in history – Medtronic priced its US$17bn trade in December, following on from Apple’s US$12bn and Oracle’s US$10bn deals months earlier. It is little wonder that DCM bankers are full of festive cheer: the year will go down as one of the best since the financial crisis for bond issuance, second only to 2009, when rate cuts prompted widespread refinancing.
Equity markets have seen their fair share of exuberance as well, with the S&P 500 recording a succession of record highs during the year. Not surprisingly, with that backdrop, the IPO market is set for its best year since 2007, buoyed not least by the biggest listing of all time, Alibaba’s extraordinary US$25bn flotation in September.
The return of M&A, also on course for its best year since the financial crisis, has been just as remarkable – not least for the loan bankers who have been asked to organise the financings that made most of the deals possible.
And yet, as anyone interested enough in banking to read this page will know, the apparently rosy picture presented by all this deal activity is much less than half the story.
In truth, the banking industry ends 2014 with a number of black clouds hanging over it.
The fines paid by the industry since the crisis have now reached a remarkable US$150bn – and there are more to come. The regulatory environment continues to shift, with new rules on leverage and total loss-absorbing capital creating additional hurdles and strategic challenges.
It is little wonder, then, that bank stocks remain down in the dumps, with many solid names still trading below book value years after the crisis and many of the world’s biggest financial institutions struggling to get their RoEs out of single figures.
The bottom line is that – seven years after the crisis – the banking industry remains in transition. Buoyant deal-making, however, shows that banks and their products are in demand. Once the clouds clear, the industry could once again begin to shine.
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