What is there to say about 2013? Well the first thing banks should say (again) is “thanks very much”. Thanks, that is, to policy makers and central bankers around the world for pumping so much free money into the system.
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With (most of) the Western world slowly returning to growth – albeit anaemic growth – the various forms of quantitative easing and allied loose monetary policy seem to have had the desired effect (at least for now), but the side-effect was a desperation for yield that was the defining characteristic of the year.
The result was booming investment-grade bond markets – featuring a deal, for Verizon, for example, that was bigger than the previous three record-sized deals combined – frenzied high-yield issuance across the world (up almost 19% year on year) and a rush from emerging markets issuers to make the most of the good times. That was all great news for the banking industry – not just because it provided fees, but also because the hunt for yield drove huge orders for the leap into the unknown that is the latest generation of bank capital products.
Stock markets around the world similarly took off, hitting record after record. US stock indices were up by 20%-plus YTD by early December, while the Nikkei 225 was on fire, adding 50% in value on the back of Abenomics, which also engineered a dramatic weakening of a persistently strong yen. High stock prices sparked an ECM jamboree; activity increased by 25%-plus year on year. The return of IPOs – volumes up by a third – and the monetisation of stakes through block trades and ABBs were outstanding features.
The word of 2013 was “tapering”. How and when the US Federal Reserve starts reducing its asset purchases had market professionals transfixed all year. Weaning the markets off monetary drugs won’t be easy. Fed chairman Ben Bernanke’s comments on the topic in May set off a fierce reaction as markets panicked at the notion of an end to QE.
Bernanke quickly backed off and tapering was postponed. The generous-minded might consider the Fed’s will they/won’t they dance to be a clever way of keeping the markets honest and reminding everyone to be ready for the end when it comes. Either way, that decision will now become the defining one of new Fed boss Janet Yellen’s career.
Meanwhile, the banking industry continued its process of rehabilitation. Deleveraging was still the order of the day and banks continued to rework business strategies to meet capital, liquidity and leverage rules. The shift towards leverage as a measure of robustness offered a clear signal that banks will need to remain vigilant as regulators keep up the pressure to render the financial system safe.
It was this mix of relatively easy financing conditions, combined with a banking industry in flux that made 2013 fascinating. After all, who wouldn’t enjoy the sight of bankers trying to keep the plates of their businesses spinning while the world moved under their feet?
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