European economies have benefited from an unprecedented amount of funding from capital markets to support the economic recovery after COVID-19, according to the latest research by the Association for Financial Markets in Europe (AFME). The paper published today (14 July) revealed the recovery is being led by record issuance levels of investment grade securities and ESG bonds. The report analysed the impact of COVID-19 on European capital markets during the four months since the World Health Organisation declared COVID-19 a global pandemic.

Commenting on the report, Julio Suarez, Director of Research at AFME, said:

“During these exceptional times, European capital markets have demonstrated their ability to support economic recovery and future growth.  Europe has seen a record amount of funding from capital markets instruments, predominantly fixed income securities. Our research also shows that Europe has the potential to lead an ESG recovery, with European social bond issuance reaching their highest quarterly volume to date. Listed SMEs across the continent have also benefited from access to equity capital and from record volumes of bank lending.”

AFME CEO Adam Farkas added:

“AFME has been working with its members and regulators across Europe to ensure that markets remain well-functioning and liquid in light of the market impact of COVID-19 while at the same time acknowledging the extraordinary support measures  extended by central banks and fiscal authorities.

“Our report shows that banks and capital markets are playing a key role in supporting the economy during this challenging period. To ensure a robust post-pandemic recovery it is important to advance the Capital Markets Union project in the EU and promote regulatory measures that improve the efficiency and functioning of European financial markets. We are keen to maintain dialogue with policy makers to ensure the industry is well placed to continue supporting European growth.”

Key findings:

1. Issuance levels of investment grade (IG) securities have reached record weekly, monthly and quarterly volumes. Q2 2020 was the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe accumulating a total of EUR 225bn in proceeds.
   1. The increase in IG bond issuance has been largely driven by Central Bank support. Between March and May, the ECB has purchased 19.5% of the new flow of euro area bond issuance with purchases of EUR 39bn of corporate bonds compared with EUR 179bn of euro area IG bond issuance.
   2. Firms headquartered in France, the United Kingdom and Germany have led IG bond issuance in Europe.
2. European social, sustainable, and green (ESG) bond issuance reached EUR 55.2 bn in Q2 2020, the highest quarterly issuance volume to date. The increase was driven predominantly by Social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn.
   1. France accounted for EUR 12.3bn (64%) of total European social bond issuance, followed by  The Netherlands (EUR 2 bn, 10% of the European total) and Spain (EUR 1.5 bn, 8% of the European total).
3. European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchanges which totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of SME funding compared to bank lending. In the United Kingdom, new gross bank lending to SMEs between March and May of 2020 totalled £35bn vs £13.7bn in the same period of 2019
   1. In France, new gross bank lending to SMEs between March and May of 2020 totalled €69.6bn vs €29.3bn in the same period of 2019
   2. In Germany, new gross bank lending to SMEs between March and May of 2020 totalled €43bn vs €40bn in the same period of 2019
   3. In Spain, new gross bank lending to SMEs between March and May of 2020 totalled €64n vs €49bn in the same period of 2019
   4. In Italy, new gross bank lending to SMEs between March and May of 2020 totalled €42bn vs €44bn in the same period of 2019
4. Record volumes of bank lending. Euro area statistics have shown a marked increase in net lending to Non-financial corporations and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients.
   1. Net lending to French non-financial corporates between March and May of 2020 totalled €92.2bn vs €24bn in the same period of 2019 and €52.6 bn in 2019FY
   2. Net lending to Spanish non-financial corporates between March and May of 2020 totalled €51bn vs €4.8bn in the same period of 2019 and €0.5 bn in 2019FY
   3. Net lending to German non-financial corporates between March and May of 2020 totalled €47bn vs €22bn in the same period of 2019 and €67 bn in 2019FY
   4. Net lending to Italian non-financial corporates between March and May of 2020 totalled €24bn vs a net lending contraction of -€7bn in the same period of 2019 and -€36 bn in 2019FY
5. European market liquidity has deteriorated over the last few months. In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels.
6. Follow on equity offerings have continued to support the recovery as companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017.
   1. Most equity offerings have been raised on UK and NASDAQ OMX exchanges, followed by Swiss and German exchanges accounting for 80% of the total European proceeds between March and June of 2020.
7. After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds on 24 deals. Issuance volumes continue subdued compared to pre-COVID levels.

The report follows from AFME’s research on the initial impact of COVID-19 on Europe’s capital markets and summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus.

– Ends –

AFME Contacts

Patricia Gondim

Interim Head of Media Relations

[email protected]

+44 (0)20 3828 2747

Notes:

1. AFME (Association for Financial Markets in Europe) promotes fair, orderly, and efficient European wholesale capital markets and provides leadership in advancing the interests of all market participants. AFME represents a broad array of European and global participants in the wholesale financial markets. Its members comprise pan-EU and global banks as well as key regional banks, brokers, law firms, investors and other financial market participants. AFME participates in a global alliance with the Securities Industry and Financial Markets Association (SIFMA) in the US, and the Asia Securities Industry and Financial Markets Association (ASIFMA) through the GFMA (Global Financial Markets Association). For more information please visit the AFME website: www.afme.eu.
2. Follow us on Twitter @AFME_EU