Finance and Covid-19: The biggest dangers lurk in risk-free markets
As government debt burdens keep rising to fight the virus, so do the chances of sudden sell-offs that could suck all markets into a vicious downward cycle.
Euromoney asks the head of investment banking at a large firm if he fears that the true extent of the economic damage from the coronavirus will only appear when the vaccines roll out and governments rein in emergency support.
He is not, it turns out, a worrier.
Rather, he expects the boom conditions that helped his business pull in record revenues in 2020 to roll over into 2021, albeit with some differences.
“Remember that, after the devastation of the Spanish flu we had the roaring 20s,” he says, later asking not to have this quote attributed to him.
He thinks M&A will be up at least 15% and maybe more in the 12 months ahead as Covid winners consolidate their industries and laggards restructure.
“Boardroom and management confidence is back,” he says.
Some of those M&A deals will be accompanied by equity raising; many of them by debt. Financing at close to zero rates makes most M&A deals earnings-accretive quite quickly, although it does less for the disciplined analysis of potential return on investment above its cost. Equity investors just like to hear about earnings growth.
Rates are the big wild card
Banks, including this banker’s, are confident and have ample capital and liquidity to extend big bridge loans.
IPOs will also enjoy a strong rebound in 2021, building on the headline successes in December of Airbnb and DoorDash.