Review of the Year 2005: Foreword

IFR Review of the Year 2005
3 min read

The past 12 months in global capital markets gave the impression of being prone to volatility and nervousness, but in truth it was a fabulous year. The downgrades of Ford and General Motors, and the reverse in correlation, created some worrisome moments, but dealers and investors shrugged off the effects pretty quickly, and the credit market continued its rollercoaster ride.

Credit spreads stayed tight all year, and the only real game in town was the continued quest to build products that offered yield pick-up. Corporate subordinated debt, structured products, local currency exposure, and duration were all themes of the year.

The leveraged buyout market continued to impress, with deal sizes and structural innovations.

A lot of size records were broken – although nothing yet has knocked RJR Nabisco off its perch – and arrangers found a willing audience for their second-lien and mezzanine tranches among hedge funds, which put a lot of cash into LBOs during the year.

Ongoing demand for LBOs and a revival in corporate M&A helped syndicated bank lenders move away from a diet of dull refinancings, and enabled them to book some decent fees. The return of trade buyers to the market caused a lot of excitement among investment bankers as well as financiers.

Corporate CEOs have sat on their hands for close on five years now, ever since the TMT/internet bubble burst in 2000-2001. But stability in equity prices and healthier balance sheets look to have done the trick, and persuaded them to step back into the corporate event arena. Not everyone believes the corporate M&A revival is yet a boom, but year-on-year, the numbers certainly look impressive.

Equity capital markets feted the return of a good flow of IPO and follow-on business. Overall volumes were healthy, and were made up of a combination of defensive old-line stories, mid-caps, growth companies, start-ups and emerging markets. Among the most avid sellers of stock were financial sponsors looking to exit LBOs.

The macroeconomic backdrop against which all this market activity unfolded was interesting, in that there was no consensus about the health of and prospects for the global economy. The onset of inflation stemming in part from punchy commodities prices remains a threat, but at the end of 2005, that threat remained somewhat muted.

In terms of the performance of investment and commercial banking participants, the 2005 awards season failed to throw up any real trends. The industry as a whole continues to be extremely profitable. Profits are way up in 2005, and the bonus season is likely to be one of the best.

The only lesson perhaps that can be drawn from the thousands of hours spent in aggregate in the awards presentations was that if banks have vision and the right people in place to achieve clear execution, the rewards can be tremendous.

This 2005 Review of the Year accompanies the final issue of IFR in 2005. The next issue will be published on January 7. In the meantime, we wish you a happy and peaceful holiday season and look forward to tracking your continued success in 2006.