Inside Track: Banks in clover as new issues continue to defy critics

David Hellier
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Far from being on its uppers as some of the moodier fund managers have predicted, London’s new issues market continues to show resilience as we come up to the half-way point in the year.

Mid-June is when the City’s big investment bank houses conduct their mid-year reviews and on the whole they make for positive reading. Just in time to send the bankers happily off on their holidays, when markets will undoubtedly pause for a breather.

A chart contained in the Bank of America Merrill Lynch (BAML) update shows initial public offering (IPO) issuance, for example, on a constant upward progression since the second half of 2011, when the market in Europe for new issues virtually closed down.

The volume of deals ($32.8bn) is still below what it was in the first half of 2011 but that figure was vastly inflated by the giant flotation of Glencore. The number of large deals – those greater than $250m – at 39, is set to beat last year’s total of 49, well up on the 25 deals completed in 2011.

Encouragingly, and despite of some scares such as the less than optimal floats of Saga and Card Factory, there is still plenty of appetite for new issues and the banks and lawyers involved expect more to follow in the months ahead.

BAML estimates there are about $80bn of deals still in the pipeline for Europe, with about $25bn of this expected to come from the UK.

Needless to say, there are issues to keep the participants on their toes in the months ahead. There has been growing tension between the independent financial advisers and the bulge bracket banks, especially after issues that have not gone so well.

TSB, Royal Mail, Merlin and Infinis aside, there has not been too much appetite for retail issues, despite clear evidence that private investors are pouring money into shares and would quite clearly want to put more of that into new issues if only they had the chance.

There are complaints about prospectuses being published far later than seems reasonable for investors’ liking and there have also been grumblings from banks outside deals who claim they have not been invited in to provide independent research.

Worryingly, the independence of research is questioned when banks are given work partly on the basis of how highly they value a company and what sector they’re happy to put it in.

Many who worked on Saga complain they were told by the independent financial advisers they had to value it as a consumer stock when most of its profits come from insurance.

There are imperfections all around and they will rear their head over the months to come. But for now, the bankers, lawyers and others can rest easy on the beaches this August.