Investment Banking M&A Down 59% [Weekly M&A Trends]

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Announced M&A volumes of $21 billion declined by 59% from the prior week’s relative strength. Thus far in 3Q12, announced M&A volumes are averaging 6% below the 2Q12 weekly average level and 10% below the 3Q11 average weekly level.

Sandler O’Neill’s Weekly M&A Trends:

The S&P 500 rose modestly and for the fourth consecutive week

  • The S&P 500 improved by 0.4% in the week, but the Russell 2000 growth index declined by 1.3%. In 3Q12, the S&P 500 has risen by 2.1% while the Russell 2000 index has declined by 1.6%.
  • Average daily U.S. equity trading volumes declined by 4% from the prior week. Thus far in 3Q12, volumes are averaging 10% below the 2Q12 weekly average and 28% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
  • Equity mutual funds experienced net outflows of $2.7 billion in the week according to ICI data (on a one week lag). In total, equity mutual funds have experienced $5.5 billion of net outflows in 3Q12 after experiencing net outflows of $22 billion in 2Q12.
  • Volatility, measured by the average CBOE VIX, declined by 4% to 17.8, and the DB currency VIX declined by 2% to 9.1.

 

Equity underwriting had its biggest week since Mid-May, but Corporate Debt underwriting strength cooled and Announced M&A remained relatively quiet

  • Equity underwriting volumes of $16 billion more than doubled from $7 billion in the prior week. A notable deal in the week was the U.S. Treasury Department selling approximately $5 billion of their stake in AIG. The USG now owns 53.4% of the company from 61.3% previously. Thus far in 3Q12, equity underwriting volumes are averaging 8% below the 2Q12 weekly average level and 8% below the 3Q11 average level.
  • Corporate debt underwriting volumes of $30 billion declined by 38% from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 6% above the 2Q12 weekly average level and 49% above the 3Q11 weekly average level.
  • Announced M&A volumes of $21 billion declined by 59% from the prior week’s relative strength. Thus far in 3Q12, announced M&A volumes are averaging 6% below the 2Q12 weekly average level and 10% below the 3Q11 average weekly level.
  • Completed M&A volumes of $55 billion improved by 53% from the prior strong week. Thus far in 3Q12, completed M&A volumes are averaging 5% above the 2Q12 weekly average level and 3% above the 3Q11 average weekly level.

 

Credit spreads improved on higher volume

  • The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) tightened (improved) by 16 bps in the week to 591 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 19 bps thus far in 3Q12.
  • The CDX investment grade index (IG18) tightened (improved) by 2 bps in the week to 104 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 9 bps in 3Q12 QTD.
  • The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 4% in the week, and has declined (improved) in eight of the prior nine weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 11% thus far in 3Q12.
  • Daily average bond trading volumes improved by 4% from the prior week. In the week, average investment grade bond volumes improved by 3%, average high yield bond volumes improved by 4%, and average convertible bond volumes improved by 12%. 3Q12 total bond volumes are averaging 12% below the 2Q12 weekly average and 6% below the 3Q11 weekly average.
  • The AAA ABX-HE rose by 6% and the CMBX rose by 1% in the week.
  • The trade-weighted U.S. Dollar Index (DXY) declined by 0.1% in the week and the Commodity Research Board Index (CRB) declined by 0.1%.
  • The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, rose (deteriorated) by 2 bps in the week to 36 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.
Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.
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