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Julio Suarez
AFME Equity Primary Markets and Trading Report - Q1 2022
27 Apr 2022
AFME is pleased to circulate itsEquity Primary Markets and Trading Report for the first quarter of 2022 (Q1 2022). The report provides an update on the performance of the equity market in Europe in activities such as primary issuance, Mergers and Acquisitions (M&A), equity liquidity structure, and market valuations. Key findings: Equity underwriting on European exchanges declined 75% in Q1’22 compared to the same quarter of 2021. All forms of equity capital raising declined during the quarter. IPO activity was exceptionally weak, with a 91% decline compared to Q1’21. SPAC IPOs reached €0.8bn in Q1’22, representing 40% of total IPO volume (11% in 2021, 3% in 2020). The ongoing geopolitical tensions in Eastern Europe have generated stress on markets which may have prevented the continuation of a sequence of robust quarters for European equity capital raising. Prior to the Russian invasion of Ukraine, markets were already dealing with a number of negative factors, such as surging inflation, supply chain issues, and ongoing risks related to the COVID pandemic, which were affecting primary issuance and demand. Most recently, in April 2022, equity issuance has slightly recovered accumulating €9.3bn in proceeds during the month, almost exclusively from secondary offerings. Completed Mergers and Acquisitions (M&A) in Q1’22 exhibited a declined when measured as announced value (-29% YoY) and when measured as completed value (-5% YoY). De-SPACS represented 5% of the total M&A value announced during Q1’22, around the same proportion observed during 2021FY. 91% of the announced SPAC acquisitions were De-SPACs of US-headquartered SPACs. Average daily equity trading on European main markets and MTFs stood at €107.6bn in Q1’22, 18% above the observed in Q1’21. Double Volume Cap (DVC) update: The number of instruments suspended under the DVC has recently increased to 838 (644 in January 2022) with 62 new suspensions identified only in April 2022. European equity trading mix: According to BigXYT data, on-venue trading represented 77% of the total addressable liquidity in Q1’22. Volume traded off-venues, on systematic internalisers and pure OTC, represent the remaining 23% of the volume of the total addressable liquidity. The proportion of on-venue trading relative to total addressable liquidity has increased in the course of the year. This is likely due to market participants seeking immediacy of execution (as opposed to minimal price impact) during periods of heightened volatility.
Julio Suarez
Government Bond Data Report Q4 2021 and Full Year 2021
24 Mar 2022
This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU+UK). Report highlights include: European sovereign bond issuance continues above pre-pandemic levels: in 2021, European sovereign bond issuance, including issuance from EU Member States, the UK and the European Commission, accumulated EUR 3362.3 bn in proceeds, 8.3% below 2020FY but 41.9% above 2019FY. In Q4 2021, EU Member State and UK bonds and bills issuance accumulated EUR 624 bn, which represents a decrease of 19.4% (QoQ) compared to 3Q21, but an increase of 1.3% (YoY) compared to 4Q20. In 2021FY, European government bond trading increased 0.2% compared to 2020, but was up 8.7% compared to 2019, according to MarketAxess. During Q4 2021, EU quarterly traded volumes increased 4.7% (QoQ) and 6.4% (YoY). Outstanding amount of EU ESG government bonds surpassed EUR 240.0 bn during 4Q21 of which EUR 28.0 bn in green bonds and EUR 0.6 bn in sustainable bonds were issued. Volumes were driven primarily by the European Commission (EUR 12.0 bn), the UK (EUR 7.7 bn), Italy (EUR 5.0 bn) and Germany (EUR 3.0 bn), which contributed to outstanding volumes of European green government bonds increasing to EUR 147.8 bn. Net loss of 7 primary dealers in Europe during June 2021-January 2022. There were 13 exits and 6 entries of banks to the European Primary Dealer system during this period, affecting sovereign debt markets in 11 countries and also the European Commission Primary Dealer Network (EU PDN). Market-implied Eurozone inflation expectations spiked following ongoing geopolitical tensions while inflation expectations inverted with 1Y inflation expectations exceeding both 5Y and 10Y. Eurozone inflation expectations continued to rise in 4Q21 andrecently spiked during 1Q22 due to the increased level of economic uncertainty as a result of the ongoing conflict in Eastern Europe. During 4Q21 there were 2 long-term credit rating upgrades for European countries and no downgrades. This follows 1 upgrade and no downgrades in 1Q21, 1 upgrade and no downgrades in 2Q21, 3 upgrades and no downgrades in 3Q21, bringing the 2021 full year total to 7 upgrades and no downgrades.
Julio Suarez
AFME Prudential Data Report Q4 2021 and Full Year 2021
21 Mar 2022
This report collates information on European GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 31 December 2021. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as at March 2022. Among the main findings of this report: CET1, T1, TLAC capital ratios increased in 2021: European GSIBs end-point CET1 ratio increased from 14.40% in 4Q20, to 14.48% in 4Q21. The 8bps increase in CET1 ratio was driven by earnings retention, which contributed 80bps, offset by growth in RWAs (predominantly credit risk RWAs) and other bank specific factors contributing to CET1 ratio by negative 35bps and 37bps respectively. Other bank specific factors include share buybacks and regulatory amendments (including reduction in IFRS9 relief and capital treatment of software). CoCo borrowing costs increased in Q1 2022: Coupon rates of newly originated CoCos averaged 4.3% during 2021, which represented a decline from 5.1% in 2020FY. Most recently, during the first quarter of 2022, borrowing costs have increased with coupon rates rising to an average of 4.6% on the back of market volatility and higher risk premia, likely due to the ongoing geopolitical tensions and rising inflation expectations in the UK and the euro area. Supervisory Treatment of Third Country Branches (TCBs): The Box on pages 21-26 discusses the European Commission’s CRD legislative proposal as it relates to the supervisory framework of TCBs in the EU. Third country institutions undertake a significant proportion of their activities in the EU, around 40% or €610 bn, through branches. This is, however, significantly lower than the €890 bn of business which is undertaken through subsidiaries. Likewise, EU headquartered banks make extensive use of branches, often with very significant balance sheets to access third countries. According to banks’ Pillar 3 disclosures, EU banks have approximately €3trillion of assets through their overseas branches and subsidiaries. There are a number of areas that legislators must consider carefully from the CRDVI proposal, including branch liquidity standards; reporting requirements; authorisation requirements; the calculation of risk thresholds; and, the expected supervisory framework.
Julio Suarez
AFME Securitisation Data Report Q4 2021 and 2021 Full Year
15 Mar 2022
AFME is pleased to circulate its Q4 2021 and 2021 FY Securitisation Data Report. Main findings: In 2021FY, EUR 233.1bn of securitised product was issued in Europe, an increase of 17.6% from the EUR 198.2bn issued in 2020. Of the EUR 233.1bn issued during 2021FY, EUR 126.0bn was placed, representing 54.1% of the total, compared to EUR 81.8bn placed in 2020 representing 41.3% of the total. The increase in placed issuance during 2021FY has been driven primarily by non-STS growth in primary issuance of CLOs, which increased 97.7% year-on-year. In Q4 2021, EUR 100.2bn of securitised product was issued in Europe, an increase of 110.5% from Q3 2021 and an increase of 55.8% from Q4 2020. Of the EUR 100.2bn issued, EUR 46.8bn was placed, representing 46.7% of the total, compared to the 48.5% of issuance in Q3 2021 and 32.7% of issuance in Q4 2020. STS issuance: Year-on-year, STS issuance decreased 20.0% to EUR 62.6bn during 2021FY, representing the lowest annual issuance volume of STS securities since the regime was brought into force at the start of 2019. Overall outstanding volumes (ex-CLOs) remained stable, increasing 0.01% YoY to EUR 992.9bn at the end of Q4 2021. While there was a reduction in primary STS issuance during 2021FY, this was offset by new issuance of SME securitisation and CDO/CLOs, which increased 278.7% (YoY) and 97.7% (YoY) respectively during 2021FY, driven by high volumes issued during 4Q21. Credit Quality: Performance of European securitisations remain robust throughout the pandemic with upgrades outnumbering downgrades by almost 6:1 during Q4 2021 and by almost 4:1 during 2021FY
Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q4 and Full Year 2021
11 Mar 2022
The Report contains European leveraged finance market trends for the fourth quarter of 2021, which includes issuance and credit performance figures for the high yield and leveraged loan markets. Key highlights: European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €87.7 billion in proceeds in 4Q’21, a 1.3% increase from €86.6 billion in 3Q’21, but a 40.5% increase from €62.4 billion in 4Q’20. Primary high yield bond issuance totaled €39.3 billion on 90 deals in 4Q’21, a 27.9% increase from €30.7 billion on 71 deals in 3Q’21 and a 14.7% increase from €34.3 billion on 87 deals in 4Q’20. The proportion of USD-denominated issuance decreased to 28.8% of all issuance in 4Q’21, down from 35% in 3Q’21 but up from 21.3% in 4Q’20. The leading use of proceeds for high yield bonds issuance in 4Q’21 was general corporate purposes, at €13.2 billion, which was lower than €15.3 billion in 3Q’21 and than €26 billion in 4Q’20. Preliminary data for the first two months of 2022 indicates that high yield bond issuance decelerated to a €15bn supply in January and February 2022, the slowest start of the year since 2016. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €48.4 billion on 117 tranches in 4Q’21, down 13.4% from €55.8 billion on 145 tranches in 3Q’21 but up 71.9% from €28.1 billion on 102 tranches in 4Q’20. 25.5% of deals financed in 4Q’21 were issued for refinancing and/or repayment of debt, down from 46.5% in 3Q’21 and slightly up from 25.1% in 4Q’20. LBO/MBO was the second largest use of proceeds in 4Q’21 with €17.4 billion, followed by Acquisitions with €15.7 billion. According to Reorg, all of the European leverage loan deals analysed in 4Q’21 were covenant-lite. According to Covenant Review, 68% of all leveraged loan deals reviewed as of 15th of December 2021 contained an ESG feature, compared to 53% of all deals reviewed in 3Q’21. Credit quality: as of December 2021, S&P reported the trailing 12-month speculative-grade bond default rate at 1.8% a decrease from 5.3% in December 2020. Moody’s reported the trailing 12-month speculative-grade default rate at 1.22% in December 2021, down from 5.0% in December 2020. Fitch reported a decrease in European Leveraged Loan default rates (by value) to 1.9% in December 2021 from 4.92% in December 2020. There were no reported defaults in the fourth quarter of 2021 by Standard and Poor’s and Moody’s. According to Moody’s, in 4Q’21 bond upgrades exceeded downgrades in Europe (17 upgrades to 14 downgrades). This is a better ratio than 9 upgrades to 17 downgrades in 3Q’21 and compared to 30 downgrades to 12 upgrades in 4Q’20. According to S&P, in 4Q’21 upgrades exceeded downgrades in Europe (39 upgrades to 21 downgrades), a worse ratio than 13 downgrades to 32 upgrades in 3Q’21 but a better ratio than 43 downgrades to 17 upgrades in 4Q’20.
Julio Suarez
ESG Finance Q4 and Full Year 2021 - European Sustainable Finance
23 Feb 2022
AFME is pleased to circulate its European ESG Finance quarterly data report for the fourth quarter and full year 2021. The aim of this report is to provide detailed data and analysis on the rapidly growing Sustainable Finance market in Europe. This Report contains up to date trends for the European Sustainable Finance market as at 31 December 2021, as well as a high-level regulatory and supervisory snapshot. Key highlights: ESG bond and loan issuance in 2021FY (€749.8bn) well surpassed the amount issued in 2020FY (€396.4bn) with an annual growth of 89%. ESG bonds and loans include ESG-labelled bonds (proceeds-based), sustainable-linked bonds, transition bonds, green-linked loans and sustainable-linked loans. ESG bond issuance represented 20.2% of total European bond issuance during 2021, from 9.3% in 2020. ESG securitisation issuance reached EUR 8bn from 12 deals (ABS, RMBS, CMBS and SRT), a 273% increase from 2020 (EUR 2.1bn) and a record annual amount. ESG bond Issuance in 2021 largely benefitted from sovereign and supranational issuers entering the market. As governments finalise their ESG funding programmes, going forward, green bond supply growth will be contingent on greater participation by the corporate sector and on seizing the potential of the ESG securitisation market. Carbon prices: European Union Allowance (EuA) price per metric tonne finalised 2021 at €79/Tn. Carbon prices have continued to increase during 2022, reaching €92/Tn at the end of January 2022 from €32.8 in December 2020. EU and UK forward curves continue to anticipate further price increases. Global ESG Funds exhibited an annual growth of 12% although at a slower growth pace than that observed in 2020 (28%) and 2019 (21%). Funds with an ESG mandate totalled $6.33 tn as of Q4 2021, a $0.7 tn increase from $5.63 tn in Q4 2020. ESG equity funds continue to be by far the largest fund asset class with 50.3% of total ESG funds and over 2x larger than fixed income which represents 22.1% of the total. ESG price premia: spreads of corporate ESG bonds against non-sustainable benchmarks have stabilized since April 2021. ESG premia has tightened from 9bps in April 2020 to 1-2bp between April 2021 and the first months of 2022. the greenium for sovereign bonds varies by issuer and by instrument, suggesting that in addition to sustainability features, other technical factors such as liquidity may influence yield premia against conventional bonds. Regulatory update: We present a selective list of upcoming European initiatives for the year 2022. For further details readers can also consult AFME and Linklaters report Sustainable Finance in Europe: Regulatory State of Play
Julio Suarez
AFME Equity Primary Markets and Trading Report - Q4 2021 and 2021 Full Year
10 Feb 2022
AFME is pleased to circulate its Equity Primary Markets and Trading Report for the fourth quarter of 2021 (Q4 2021) and 2021 full year. The report provides an update on the performance of the equity market in Europe in activities such as primary issuance, Mergers and Acquisitions (M&A), equity liquidity structure, and market valuations. Key findings: Equity underwriting on European exchanges rose 29% in 2021 compared to 2020 and 94% vs 2019. The increase was driven by an exceptional year for Initial Public Offerings (IPOs), with the highest annual issued amount since 2007. Private Equity (PE) exits via IPOs represented 35% of the year total, with a record high for PE-backed IPOs. SPAC IPOs reached €7.4bn in 2021, representing 11% of total IPO volume (3% in 2020). Completed Mergers and Acquisitions (M&A) exhibited the highest deal value amount since 2007, with record outbound purchases by European companies and record PE-backed acquisitions. De-SPAC acquisitions represented 5% of the total announced M&A volume in Europe in 2021 (2% in 2020). Average daily equity trading activity on European main markets and MTFs stood at €87.2bn in 2021, 5% below the average daily observed in 2020. Double Volume Cap (DVC) update: The number of instruments suspended under the DVC has recently increased to 644 in January 2022 (from 205 in Dec-20) with 242 new suspensions identified only in January 2022. European equity trading mix: According to BigXYT data, on-venue trading represented 72% of the total addressable liquidity in Q4 2021. Volume traded off-venues, on systematic internalisers and pure OTC, represent the remaining 28% of the volume of the total addressable liquidity. Domestic market capitalisation of European listed shares stood at €17.2tn at the end of December 2021, a 21% increase from €14.2 at the end of 2020.
Julio Suarez
AFME Securitisation Data Snapshot: Q4 2021 and 2021 Full Year
26 Jan 2022
AFME is pleased to circulate the European Securitisation Data Snapshot for Q4 2021 and 2021 Full Year. Key highlights: Q4 2021 European Issuance In Q4 2021, EUR 100.2 bn of securitised product was issued in Europe , an increase of 110.5% from Q3 2021 (EUR 47.6 bn) and an increase of 55.8% from Q4 2020 (EUR 64.3 bn) Of this, EUR 46.8 bn was placed, representing 46.7% of the total, compared to EUR 23.1 bn placed in Q3 2021 (representing 48.5% of EUR 47.6 bn) and EUR 21.0 bn placed in Q4 2020 (representing 32.7% of EUR 64.3 bn) In Q4 2021, Pan-European CLOs led placed totals, followed by UK RMBS and German Auto ABS. Pan-European CLOs increased from EUR 8.8 bn in Q3 2021 to EUR 4.9 bn in Q4 2021 Pan-European CLOs increased from EUR 8.8 bn in Q3 2021 to EUR 4.9 bn in Q4 2021 German Auto ABS increased from EUR 1.0 bn in Q3 2021 to EUR 2.7 bn in Q4 2021 2021 Full Year European Issuance In 2021, EUR 233.1 bn of securitised product was issued in Europe, an increase of 17.6% from the EUR 198.2 bn issued in 2020 Of this, EUR 126.0 bn was placed, representing 54.1% of the total, compared to EUR 81.8 bn placed in 2020 representing 41.3% of the total In 2021, PanEuropean CLOs led placed totals (EUR 43.7 bn) followed by UK RMBS (EUR 26.0 bn) and German Auto ABS (EUR 7.7bn)
Julio Suarez
AFME Securitisation Data Report Q3 2021
15 Dec 2021
AFME is pleased to circulate its Q3 2021 Securitisation Data Report. Main findings: In Q3 2021, EUR 47.6 bn of securitised product was issued in Europe, an increase of 30.8% from Q2 2021 and an increase of 18.2% from Q3 2020. Outstanding volumes (ex-CLOs) decreased to EUR 969.9 bn at the end of Q3 2021, a decrease of 0.25% QoQ and a decrease of 1.59% YoY. Credit Quality: In Europe, upgrades comprised 87% of total rating actions during Q3 2021, compared to 84% of total rating actions during Q2 2021. STS issuance: In Q3 2021, EUR 12.8 bn of total (placed and retained) securitised product was notified as Simple Transparent and Standardised (STS) to ESMA, representing 26.9% of total issued volume in Q3 2021 (EUR 47.6 bn). Out of the EUR 12.8 bn in STS issuance, EUR 7.9 bn was placed, representing 34.2% of total placed issuance in Q3 2021 (EUR 23.1 bn)
Julio Suarez
AFME Prudential Data Report Q3 2021
14 Dec 2021
This report collates information on European GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 30 September 2021. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as at November 2021. Among the main findings of this report: CET1 and T1 capital ratios increased in Q3 2021: European GSIBs end-point CET1 ratio increased from 14.36% in 2Q21, to 14.51% in 3Q21. Earnings retention contributed 27 bps to the 15bps increase in CET1 during the quarter, which was offset by RWA growth, FX variations, and other bank-specific factors. All the banks covered in this report have launched during the year or are expected to launch buyback programs which contribute to reduce capital buffers formation albeit from the existing record-high CET1 ratios. Of the banks that undertook buyback programmes during 3Q21, this represented between 10bps and 20bps on CET1 ratio. Banks have continued to increase credit risk RWAs on an absolute and relative basis. The increase in credit risks is predominantly driven by business growth and improving economic forecasts. Credit quality has not been a major driver to credit risk RWAs growth as stage 3 exposures have declined 2% YtD (EUR 4bn) while impairment allowances have declined 4.3% YtD (EUR6.2bn) Contingent Convertible (CoCo) borrowing costs increase from record lows: Coupon rates of newly originated AT1s rose to 5.1% in 4Q’21, an increase from an average of 4.2% observed in 3Q’21. The increase in borrowing costs was driven by higher risk premia and likely due to rising inflation expectations in the UK and the euro area. European banks have issued a total of EUR 29bn in AT1 CoCos as of November 2021, of which EUR 16.5bn were issued by European GSIBs. Basel implementation in the EU and UK: The Box on pages 22-26 discusses the EU and UK implementation of the final December 2017 Basel III standards. In the EU, on 27 October, the European Commission published the anticipated CRR3 proposal which implements the final elements of the Basel III package. According to the EU Commission’s proposal, the majority of measures are expected to be implemented on 1 January 2025. The Commission’s text includes a number of transitional arrangements, in particular related to the output floor until 2030 and in some cases extend to 2032. In the UK, the Prudential Regulatory Authority is expected to consult on the Basel 3.1 implementation during the second half of 2022. For UK authorities, there is a desire to ensure rules, particularly on global business lines, are implemented on a consistent timeline internationally.
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