The scale of the fee enjoyed by investment banks, as companies flock to raise money in the capital markets to cope with the coronavirus, is revealed in new figures – with London bankers enjoying their highest quarterly pay-out in almost five years. London listed companies accounted for over 80pc of all pandemic-fuelled emergency fund raising in the first half of 2020, raising bumper revenues for banks’ UK equity capital markets team.
Investment banks brought in $172m in fees from such deals in Q2 this year – more than double what they made from all stock deals in the country during the first three months of 2020. Overall revenues of $349m reached a five-year high, according to data from Dealogic.
UK companies have rushed to raise money to shore up their balance sheets in the wake of the pandemic. Around $11bn was raised by London-listed firms in the second quarter of 2020 because of Covid-19, the data shows, which amounts to 83pc of the total in Europe. Globally, the UK accounted for 43pc of all pandemic related stock issues.
Head of UK equity capital markets at Bank of America, Daniel Burton-Morgan said: “Equity raisings were being used to shore up liquidity and take down leverage and were initially more defensive because on the impact of Covid-19.” He added: “That has now moved to companies raising capital to seek opportunities and accelerate growth.”
Around $15.2bn has been raised by London-listed companies since the beginning of the UK’s lockdown in March, bringing the total Q2 capital raises to over $25bn – the highest three-month total since the second quarter of 2014.
Co-chief executive of investment bank Numis – which focuses on the UK market – Ross Michinson said it was “hard to unpick” deals that were specifically related to Covid-19 from those that were not. However, he added that the total raised so far on London’s stock exchanges was likely to be just the beginning.
“The economic fallout from this crisis is likely to be worse than the 2008 financial crisis,” he said. “Then, excluding bank recapitalisations, there was around £60bn raised by UK companies, or about 5pc of the total market capitalisation. Now, that figure would be about £100bn, so with £15bn raised so far there’s a long way to go.”
Burton-Morgan said: “Once companies are through Q2 reporting, we would expect more equity raisings related to the impact of Covid-19.” He added: “The government is not likely to be taking an active role in bailing out companies or injecting equity, so we see more equity being raised than in continental Europe, where the state has stepped in to provide that direct support.”
The biggest deals in the quarter were caterer Compass Group’s $2.4bn follow-on offering in May, while brewer Whitbread raised $1.3bn in June. US banks have dominated Covid-19 capital raising with Goldman Sachs, Morgan Stanley, Bank of America and JP Morgan taking a 49.2pc share of the market by value, according to Dealogic.