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Investment banks: Debt clouds have an equity lining

A rights issue boom means investment banks have bizarrely profited from their failures.

One of the joys of being a diversified investment bank with tentacles around many asset classes is that sometimes falling activity in one can be offset by the continuous rattling of another.

This is somewhat the situation today where banks that shook their debt market toys so wildly that they broke are now benefiting from the chance to repair some of the damage through their equity capital market businesses.

The destruction of hundreds of billions of dollars-worth of capital has left many banks in desperate need of billions in equity. Now that sovereign wealth funds have already been tapped for cash and put off further investments thanks to more shock losses, that leaves existing shareholders, the public equity market and convertible investors as the only ones to turn to.

As a result, ECM revenues from rights issues completed so far this year are up 32% to $492 million, according to Dealogic, a figure that does not include the revenues that will be gained from some of the biggest such deals – including those of RBS and UBS, which are a jaw-dropping $23.8 billion and $15.1 billion respectively – that have been announced but not yet completed.

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