MS Morgan Stanley

By Corrie Driebusch 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 10, 2020).

Since the coronavirus pandemic began, companies looking to bolster their balance sheets have rushed to sell stock in record amounts. The result has been a resurgence in fees to Wall Street banks in a high-margin area that had languished for years -- a bounceback bankers and investors say could last through the fall.

Thanks to a flood of new-stock issuance and a resilient IPO market, companies raised nearly $190 billion from the end of March through the end of June, the most ever in a single quarter for the U.S. equity-capital markets, according to Dealogic, whose data go back to 1995.

The wave started in the convertible-bond market as the Federal Reserve gobbled up more bonds to help stimulate the economy. Then it spread to large stock sales by publicly traded companies looking to bolster their coffers as the virus threatened business. Those successes emboldened other companies looking to raise money opportunistically by selling stock. Then, in late May, initial public offerings jolted back to life.

Last month, Warner Music Group Corp. and ZoomInfo Technologies Inc. raised nearly $2 billion and more than $900 million, respectively, in their IPOs, and Albertsons Cos. raised $800 million for its selling stockholders by going public. Soon, the hedge-fund billionaire William Ackman is hoping to raise $3 billion in a blank-check company IPO.

Secretive data company Palantir Technologies Inc. is considering a late-summer or fall IPO, according to people familiar with the matter. Food-delivery company DoorDash Inc. is expected to pursue an IPO in the near future.

"We're in the face of a very resilient equity market which, combined with economic uncertainty, has led to a period of unprecedented equity issuance," said Jim Cooney, head of Americas equity-capital markets at Bank of America Corp.

Wall Street has reaped billions in bank fees from such deals, even as the financial world struggles to find its footing in an economy rattled by the coronavirus pandemic. Equity-capital-markets transactions brought in roughly $5.7 billion in fees in the first half of the year, Dealogic estimates, a bounceback after several years of languishing fees as fewer large companies tapped the IPO market.

That was topped by the debt-capital markets, a lower-margin business that had so much volume it brought in roughly $8.5 billion in fees, according to Dealogic, as the Fed and other investors bought a staggering amount of new bonds from U.S. companies.

In June, $17.2 billion was raised in IPOs, which tend to generate the highest-margin fees for banks in equity-capital markets. After a slow start to 2020, IPOs are poised to make up a bigger portion of banks' fees for the rest of the year, said John Chirico, co-head of North American banking, capital markets and advisory at Citigroup Inc.

"IPOs are only a recent phenomenon. July this year to July next year should look like a more normal year" in terms of mix, Mr. Chirico said.

Bankers and investors say they expect the resurgence in stock issuance to strengthen in the coming months.

The weeks after the Fourth of July holiday typically tend to slow for IPOs, because it can be trickier to find time on analysts' and fund managers' calendars. A slowdown this year is less likely, as companies are wary of a second coronavirus wave that could halt reopenings and further jolt the economy and stock market. Another fear: the November presidential election and its potential to surprise the market.

"As volatility comes down, you see the appetite of investors go up," said Sonu Kalra, portfolio manager of Fidelity Blue Chip Growth Fund at Fidelity Investments, who bought BlackRock Inc. stock when PNC Financial Services Group Inc. sold its $13 billion stake in May. "As long as volatility stays in this range, there will be appetite. But if you see volatility spike, things could quickly change."

Another reason the resurgence might continue is investors are eager to buy stock at discounts to bolster their returns. The bounceback in the stock market from March lows was largely led by individual investors -- atypical of most rallies -- and it has driven many large mutual and hedge funds to play catch-up, some money managers said. One way to do that is to buy chunks of stock in discounted follow-on offerings or IPOs.

"Institutional investors were late to the party this time. That put a lot of pressure on [them] to participate with secondary offerings or IPOs," said Rick de los Reyes, co-portfolio manager of the T. Rowe Price Multi-Strategy Total Return Fund, which has scooped up shares over the past few months through these types of offerings.

In 2020, Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America, Morgan Stanley and Citigroup have each done more than $20 billion of equity-capital-markets deals through Tuesday, whereas at the same point last year, no bank had eclipsed $16 billion, according to Dealogic.

Write to Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

July 10, 2020 02:47 ET (06:47 GMT)

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