BUOYANT CAPITAL markets activity underpinned US banks’ second-quarter earnings, with a boom in equity and debt issuance helping to offset continued losses on toxic assets, bankers and analysts said.
With two days to go before the end of the quarter, and a fortnight before banks begin reporting results, executives said the strong performance in trading and underwriting in the first quarter was exceeded in the three months to June. The completion of the US government’s bank stress tests set off a flurry of activity on Wall Street, with financial institutions reaping large fees for helping rivals raise equity to plug capital shortfalls and repay federal aid.
Banks and other financial groups raised $89 billion (€63 billion) in equity via 92 deals in the second quarter, the highest number of deals on record and the highest dollar volume for a year. US groups’ second-quarter equity issuance of $259 billion was more than three times the $71.3 billion raised in the first quarter, according to Dealogic.
A rebound in high-yield bond activity and unusually high margins in fixed income trading also contributed to what one Wall Street executive called a “perfect storm” for investment banking businesses.
“The second quarter has been exceptional,” said one head of capital markets at a US bank. “It’s good to be back and pricing deals.”
Most banks will suffer writedowns on toxic assets, with analysts predicting a worsening in the performance of commercial mortgage-backed securities.
Some banks are also expected to record large accounting losses on the treatment of their debt. – Copyright The Financial Times Ltd 2009
