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Bank towers in Toronto's financial district (Fred Lum/Fred Lum/The Globe and Mail)
Bank towers in Toronto's financial district (Fred Lum/Fred Lum/The Globe and Mail)

Capital markets face heavy slogging against EU headwinds Add to ...

Canada’s capital markets ended last year on a soft note, and there’s not much hope for a big rebound in 2012 until the European debt crisis sorts itself out.

Figures from Thomson Reuters show that activity in all major categories of investment banking declined in 2011.

The value of mergers announced last year involving Canadian companies slid 13 per cent to $159-billion (U.S.). The value of bonds sold by Canadian companies and governments slipped 3.4 per cent to $160-billion (Canadian) and the amount of stock sold by Canadian companies dropped almost 12 per cent to $32.2-billion.

The year started strong but the European sovereign debt crisis that began in Greece cast a pall over markets.

“With what happened in Europe the whole view and the sentiment shifted,” said Tom Milroy, chief executive officer of Bank of Montreal’s securities division. “It’s back to a state of uncertainty and volatility.”

Bankers’ desks are crowded with files on planned initial public offerings, mergers and bond sales, but executives are waiting until they feel more confident about the environment before launching transactions.

In the meantime, the busiest sectors will be those considered the safest – companies such as pipelines, utilities and real estate. They are popular with investors because of their dividends and perceived stability. That’s driving up share prices and giving executives in those industries the confidence and cheap cash needed to do deals.

“In 2012 we’ll probably look like 2011 in terms of where we’ll see the activity,” said Michael Boyd, head of mergers and acquisitions at CIBC World Markets, which was the busiest bank when it came to advising on Canadian mergers last year. “We have seen more activity in some of the more stable sectors: power and utilities and real estate.”

Those same sectors are likely to generate much of the equity issuance, said Sante Corona, head of equity capital markets at TD Securities. His firm finished first in the rankings for Canadian stock underwriting thanks in large part to some big deals for Dundee International Real Estate Investment Trust. Investors are also open to buying shares to help companies with big, proven mineral and energy deposits fund extraction, he said.

“This year, at least the first part, is likely to look a lot like last year. There is still strong demand for yield and high-quality growth companies.”

Should markets improve, there are likely to be some new names showing up on Canada’s stock exchanges with the backlog of initial public offerings. Private equity firms in particular have been looking to sell some of their holdings but the IPO market has been largely shut for months.

“There are a lot of IPOs out there ready to go, but on hold until we have a better market,” Mr. Corona said. “Reduced market volatility will help.”

For even the most solid companies, raising money is going to require being nimble. Like 2011, the market is likely to open and shut quickly depending on which way the winds from Europe are blowing.

“Broader market volatility is going to provide windows of opportunity that you have to be prepared to access,” said Chris Seip. He is the head of Canadian bond underwriting at RBC Dominion Securities, which finished last year atop the rankings yet again for busiest bank for helping Canadian issuers sell debt.

For bonds, governments will continue to be busy issuers as they finance deficits. Companies, on the other hand, are awash in cash for the most part and there’s not a big demand to sell debt, even though there’s plenty of demand for bonds from Canada.

“Canada is benefiting from this flight to quality,” Mr. Seip said. “It’s this beautiful boring story in Canada.”

______

10 BIGGEST MERGERS OF 2011



Target

Buyer

Value ($ billions U.S.)

Status

Equinox Minerals

Barrick Gold

7.46

Completed

Consolidated Thompson Iron

Cliffs Natural Resources

4.58

Completed

TMX Group

Maple Group Acquisition

3.85

Pending

RBC Bank(USA), Raleigh, N.C.

PNC Finl Svcs Group

3.45

Pending

Brookfield Renewable Power

Brookfield Renewable Energy

3.40

Completed

Axa Canada

Intact Financial

2.79

Completed

Daylight Energy

Sinopec International

2.76

Completed

European Goldfields

Eldorado Gold

2.32

Pending

Quadra FNX Mining

KGHM Polska Miedz

2.19

Pending

Husky Injection Molding Systems

Investor consortium

2.10

Completed

______

BUSIEST CANADIAN BANKS FOR DEBT



Bank

2011 Funds raised ($ billions)

Number of Issues

2010 Funds raised ($ billions)

Number of Issues

RBC Dominion Securities

37.52

120

38.49

132

TD Securities

29.22

92

30.07

93

CIBC World Markets

28.24

148

25.44

121

National Bank Financial

28.21

69

21.52

61

BMO Nesbitt Burns

19.43

47

16.67

44

Industry Total

159.6

410

165.24

384

Source: Thomson Reuters

______

BUSIEST BANKS FOR EQUITY UNDERWRITING



Bank

2011 funds raised ($ billions)

Number of issues

2010 funds raised ($ millions)

Number of issues

TD Securities

5.45

53

2.85

40

RBC Dominion Securities

4.08

62

3.72

55

BMO Nesbitt Burns

3.41

39

3.85

54

CIBC World Markets

3.27

39

3.49

45

Scotia Capital

2.39

40

1.69

27

Industry Total

32.19

565

36.36

637

Source: Thomson Reuters

______

BUSIEST BANKS FOR MERGER ADVICE



Bank

2011 deal value ($ billions, U.S.)

Number of deals

2010 deal value ($ billions, U.S.)

Number of deals

CIBC World Markets

35.6

38

28.45

53

BMO Nesbitt Burns

34.87

58

35.09

55

RBC Dominion Securities

27.78

58

33.23

61

TD Securities

26.72

32

32.79

58

Merrill Lynch

18.98

16

20.87

17

Industry Total

157.13

3,362

179.92

3,539

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