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Capital markets: Worried by a lack of concern

Wall Street bankers think the capital market boom is the new normal. We’re not so sure.

It’s always a concern when bankers aren’t talking up their books. After all, in the midst of the mortgage blow-up, ABS bankers were still claiming that the securitization market was alive and kicking. But a tour of Wall Street executives this month (see After the crunch, THE BIG APPLE BITES BACK) revealed extremely muted enthusiasm about the amount of deals in equities and debt that have flooded the market this year. Conversely worrying was the lack of pessimism about the surprising amount of capital raises. Bankers without strong opinions are rare. So are they just exhausted? Or are they leaving us to read between the lines?

Positive earnings, increased deal flows, and equity market upticks might on the surface point to a recovery but beneath the façade there is a definite sense that banks are flying by the seat of their pants. Investment banking revenues are being driven predominantly by sales and trading in fixed income. And that trading is being driven primarily by the Federal Reserve’s programme of guaranteeing and buying mortgages.

To boot, the US economy is offering no positive signs to encourage treasurers that they should be raising capital for growth plans, and for the most part they’ve now repaired their balance sheets with the cheap financing that has been available.

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