This year is shaping out to be the worst since 2006 for investment banks involved in Australian deals, as they wrestle big drops in activity across M&A advisory, equity capital markets and (last year’s knight in shining armour) debt capital markets.
Data provider Refinitiv’s tally of Australian deals and associated fees so far this year turned up a 66 per cent fall in revenue earned by investment banks compared to 2022’s March quarter – a period that fits neatly with RBA’s 10 consecutive rate rises starting in May 2022.
The total fee haul so far’s been $US358 million.
The biggest chunk of this came from DCM deals (40 per cent of the pie), followed by M&A advisory and ECM (about 25 per cent each) and lastly syndicated lending (10 per cent).
Street Talk should also point out Refinitiv’s M&A advisory numbers are based on “announced” deals vs signed and sealed ones. You only have to look at the wait at Newcrest Mining to know actual M&A advisory fees to hit banks’ own profit and loss statements at March end would most likely be skinner than the estimate.
Each of those four lines of business was down when lined up against 2022’s March quarter numbers.
ECM underwriting fees were down 14 per cent, DCM fees fell 31 per cent, M&A advisory crashed by 77 per cent and syndicated lending was 89 per cent lower. Interestingly, even the big four banks (and non-bank lenders’) early and vigorous start to this year’s fund-raising hasn’t been able to save DCM units’ numbers.
Corporate debt issuers remain sleepy, non-bank lenders are watching bank debt to see where the safer counterparts’ spreads land, and the Australian iTraxx Credit Index (kind of like the VIX of bond markets) has shot up 20 per cent since January amid banking scandals. Future hybrid issuance, in particular, would be closely watched even in Australia, after Credit Suisse’s shotgun marriage with UBS wiped out Tier 1 investors.
Goldman Sachs had the biggest slice of the pie ($US32.9 million or 9.2 per cent market share). UBS led ECM fees, cornering nearly a quarter of the total. Gresham was in the lead in M&A advisory, thanks to defending Newcrest Mining with JPMorgan as Canadian giant Newmont made an approach. NAB was the top DCM bookrunner, likely helped by big four banks’ propensity to hire their own teams to run their multi-billion dollar raises.
The question is, where to from here?
Equity investors have shown they are willing to push through chunky raises even amid heightened volatility. Troubled casino operator Star’s $800 million cash call and Kelsian are among the pre-banking crisis examples and National Storage REIT since then. The IPO pipeline looks like it has Virgin Australia and Redox keen to pop out, as both head out this month to meet investors amid IPOs’ nuclear winter.
But there’s no denying it’s tough going in pricing raises when share prices are moving around so much – WAM Leaders’ scuttled $731.5 million raising is an example – if not still depressed.
On the M&A front, bankers know a pounce doesn’t mean an instant catch. Just look at Origin Energy.
They’ll be hoping deals pick up soon, or else there could be carnage come the next bonus season.
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