Capital markets see brisk business in 2010

New York : Capital markets bankers are almost as fixated on merger activity as their investment banking colleagues.

Debt markets have seen record issuance this year while share issues to shore up balance sheets boosted equity markets well beyond most expectations. Both are expecting similarly big business next year for a variety of reasons, though all bankers are hedging their forecasts with one factor: it depends on mergers and acquisitions.

In both cases, big deal-related financings promise fee bonanzas that boost the advising banks' league table positions.

"The consensus is that bond issuance will be lower, at least for investment grade," said Mark Bamford, head of the global fixed income syndicate desk at Barclays Capital, "but that's subject to the M&A calendar and could all change if we see a pick-up in deal activity which would boost issuance."

Banks' reluctance — or inability — to use their balance sheets to help finance deals will also bring the equity and debt desks into sharper focus earlier in the deal-making process. Equity has a long-held role as a deal currency, but after a record year, particularly in Europe, bond bankers are ready to expound the virtues of the debt markets.

"There will be a little bit of a balancing act with equity markets," said Hakan Wohlin, co-head of European debt capital markets at Deutsche Bank. "We will see financial heads access the bond market more quickly and in larger size to fund M&A."

Bond issuance

Corporate bond issuance reached global records in 2009 and, for the first time, exceeded issuance by financial groups.

For the first time, too, issuance in the US, at $494.5 billion (Dh1.8 trillion), was smaller than the $555.8 billion produced in Europe — underlining the dramatic swing by European companies from their traditional cosy banking-based funding to the public markets.

Although companies were partly forced to the markets by their lenders, bankers believe that the shift will prove a long-term change that will see corporate Europe become more like the US, where companies are used to relying on the bond markets more than their banks.

"To some degree it will be structural because everyone, even people who just chase the cheapest buck, now realises that diversifying your funding is sensible," said Eirik Winter, head of European debt capital markets at Citigroup.

Equity capital market volumes rose 41 per cent this year to $892.4 billion, with the current quarter accounting for $314.5 billion of that as the initial public offering market woke up.

— Financial Times