December 31st is approaching soon and many in the financial industry are feeling the pressure – and not just hedge funds. According to a December 1st report from Credit Suisse Equity Research, the current state of the global economy is clearly a mixed bag, with transitional macroeconomic conditions pressuring investment banks, and December will be key, the analysts at CS note in a report subtitled “December Activity Will Make or Break the Quarter”.
Credit Suisse research analyst Susan Roth Katzke and team note that: “M&A activity remains fairly robust, and equity prices are up around the world. That’s the good news. Debt capital markets activity remains quite weak and credit prices are mixed; trading volumes are mostly lower. Macro actions and trading follow through will make or break the quarter; we would stay conservative with respect to the near term capital markets revenue outlook.”
Current overview of investment banks
Electron Capital Partners' flagship Electron Global Fund returned 5.1% in the first quarter of 2021, outperforming its benchmark, the MSCI World Utilities Index by 5.2%. Q1 2021 hedge fund letters, conferences and more According to a copy of the fund's first-quarter letter to investors, the average net exposure during the quarter was 43.0%. At the Read More
Overview of Investment Banking Fees: So far in the fourth quarter, M&A and IPO activity are up, but debt capital markets activity continues to slow down. In November, the global fee pool for investment banks reached $4.5 billion, down 33% from year ago levels and off 19% compared to October. Announced M&A volumes have increased by 91% year over year in 4Q and backlogs are tracking up 33% year over year. However, completed M&A volumes are still slipping (-14% yr/yr; -18% qtr/qtr), as are related fees (note that closings typically skew towards year end. Equity underwriting volumes are tracking up 1% year over year and up 46% quarter over quarter on higher IPO volumes (+19% yr/yr, +322% qtr/qtr), and related disclosed equity underwriting fees are off 17% year over year, but have moved up 21% quarter over quarter. Of note, debt underwriting remains weak so far in the fourth quarter, with volumes projecting for a 13% decrease year over year and 8% quarter over quarter. Loan syndication activity is off a worrisome -27% year over year and -19% quarter over quarter, and fee trends are working lower together with volume trends.
Current Asset Prices and Volatility: Global equity prices are up nicely fourth quarter-to-date. The S&P 500 has moved up 9%, Europe up 5% and the Far East up 10%, as of November 30th. Also of interest, credit prices are lower across the board as of Dec. 1st, as both the CS Leveraged Loan Index and CS High Yield Bond Index have declined on average. Most commodity prices have also slipped, and volatility is also down so far this quarter.
Recent Trading Volumes and Fund Flows: Almost all exchange volumes for the fourth quarter are down compared to both a year ago and the third quarter, and fixed income volume seems to be a bit stronger than equities. Of note, equity, taxable fixed income and money market funds have all seen net inflows so far in the quarter.
Retail Brokerage Activity: Finally, retail trading activity showed continued weakness in November, down notably year over year, but stabilizing as of October. Roth Katzke et al. are projecting a slight sequential quarter decline in trading activity, but expect positive net asset flows to continue.
Credit Suisse top picks in investment bank sector
Current Credit Suisse top picks (Outperform) in the IB sector include famous investment banks such as Goldman Sachs, Bank of America, Citi, JPMorgan, Wells Fargo, Raymond James, Nasdaq, Lazard, Evercore and ITG. The CS team, however, currently have Underperform ratings on MarketAxess, Forex Capital Markets, Virtu Financial and CBOE.