With IPOs frozen, commissions charged by banks plummet 74%

Fears about recession and the impact of the war in Ukraine undermined capital markets in the second quarter, weighing on fees charged by investment banks on transactions that include equity offerings.

The slowdown caused fees charged by these banks on capital markets transactions to drop 74% to $2.6 billion, according to Refinitiv data. The performance marked the worst quarter for the sector in the world in 13 years.

Initial public offerings (IPOs) and other fundraising operations by listed companies totaled $94 billion between late March and June 21, 25% of the total raised during the same period last year, amid sharp drop in business in the United States and Europe.

Investment banking executives expect market conditions to improve in the second half of the year ahead of expected IPOs by Porsche, chip designer ARM and dermatology company Galderma in the next IPO window.

But some IPO deals ended up being wiped off the map this year.

“In 2022, it will be materially impossible to reach a level close to the volume of operations that was done last year. There is no time,” said Jerome Renard, head of capital markets for the European Union at Bank of America.

This Thursday (30), the Italian manufacturer of electrodes Industrie De Nora fell 3.1% in its debut on the Milan stock exchange. The trading of the shares marked the first debut of a relevant company on the Italian stock market since the beginning of the war in Ukraine.

Swiss engineering and technology group ABB last week postponed plans for the IPO of its electric vehicle battery charging unit, citing “challenging” market conditions.

Other US companies have followed suit, including the social network Reddit and Intel’s autonomous vehicle technology company Mobileye.

Brad Miller, head of capital markets for the Americas at UBS, said some IPO candidates have postponed their operations to 2023 or until uncertainties about inflation and interest rates dissipate.

The US and Europe, which typically account for about 60% of the global IPO market, only had a 9% share of second-half issuances, down 96% from last year.

Secondary equity offerings fell 70% in the quarter from a year earlier and convertible debt offerings tumbled 85% to 7 billion euros.

But while banks bemoan the market, investors cheer for reduced prices.

“This year was not bad because what we saw being offered is the top of the basket in terms of quality and also the bottom of the basket in terms of value,” said Luc Mouzon, head of capital markets at French asset manager Amundi, which invests in in stock sales.

Last year was a record for IPOs, but it was painful for investors in these operations. Many of 2021’s biggest deals are trading well below their debut price, with the FTSE Renaissance IPO Index for Europe, Middle East and Africa accumulating around 45% down this year so far.