The global spread of coronavirus is threatening to put a halt to any recovery in European dealmaking this year by grounding jet-setting investment bankers in the City of London. Global stocks suffered their worst week at the start of March since the financial crisis as new cases of Covid-19 were confirmed in the Middle East and Europe.
The biggest financial services institutions in London’s financial district and Canary Wharf area, including JP Morgan, Goldman Sachs, Deutsche Bank and Standard Chartered, have issued increasingly strict guidelines to staff, ranging from travel bans to mandatory work-from-home orders.
Bankers, who travel abroad frequently to meet clients engaged in mergers and acquisitions and raising money in the debt and equity markets, as well as investors, are starting to feel the impact of restrictions.
A head of investment banking in one of the big Wall Street firms in London said: “So far, we’re seeing some creativity on regular capital markets deals, with clients doing roadshows via video conferences rather than in person because we’re limiting travel.” He added: “It’s inevitable that the strategic deals will be impacted – M&A and definitely IPOs.”
The private equity firm Carlyle Group has already postponed a US listing of Atotech, a German chemical manufacturer, because of worries the spread of Covid-19 could impact its value. Russia’s largest petrochemical company Sibur last month cited the virus among its reasons for ruling out an IPO in 2020. This is bad news for London-based bankers keen to avoid another lean year for revenues.
Investment banking fees dropped globally last year by 5 per cent to $76.8 bn, according to data provider Dealogic, with falls in North America and Europe off-setting a stronger year in the Middle East and Africa and parts of Asia. So far in 2020 there have been some signs of recovery in Emea (Europe, Middle East and Africa) on the back on improving sentiment towards Brexit and US-China trade relations. The value of M&A in the region stand at $116bn for the year to date, up 8 per cent on the same period in 2019.
Any sustained hit to European revenues would likely be keenly felt in addition to subdued M&A volumes in the US, one of the world’s most lucrative markets for investment bank fees.
The value of M&A deals in the US has slumped by 56 per cent this year, according Dealogic. The investment banking head at the Wall Street firm said: “It’s a big worry, particularly as it’s been such a slow start to 2020. I can’t tell you that clients have stopped doing business in Europe because of this, but if it continues, they inevitably will.”
In Canary Wharf, where the oil company Chevron sent 300 staff home at the end of last month after one reported flu-like symptoms, banks have been updating guidance to staff.
Travel to and from the country now requires manager sign-off. Goldman Sachs has restricted staff travel to mainland China, South Korea and regions in northern Italy. Credit Suisse and Standard Chartered are among others encouraging bankers to avoid face-to-face meetings in high-risk areas, according to people familiar with the banks’ plans.
The Financial Conduct Authority, the UK’s market watchdog, has been in contact with banks and other companies it regulates.
A spokeswoman said: “It’s important that firms have in place plans to deal with these types of events and are able to continue operating effectively.” The head of financial sponsors at another large US bank in London said: “People at the bank are being sensitive to people’s needs. On both sides, there’s a lack of willingness to meet in person currently.”
Bankers based closer to China, where the virus first emerged, are reporting similar problems. One senior investment banker at a large UK lender said: “In Hong Kong and China, people are on lockdown and bankers are meeting clients via video conference. This is a particular problem when deals are hinged on in-person meetings and client relationships.” M&A volumes in Asia-Pacific are down this year, by 29 per cent to $86.9 bn.
A corporate finance banker based in the Middle East said: “The big worry right now is Saudi Arabia. Most bankers here tend to fly into the Kingdom from Dubai and Bahrain and there’s more of a reluctance to do this. This is going to have a big impact on revenues in the Middle East and will definitely hit transactions.” (The writer is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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