First up are three regular questions we ask each year — predictions for volumes, fees and spreads. This year we've added an extra category — asking people to predict what they think will happen to maturities, given expectations that interest rates will finally start going up in the US and the UK.
The picture painted here is a bit gloomy — most think volumes will be flat or lower and and fees either flat or down on 2021. Meanwhile, maturities look set to shorten, though not dramatically. As the last few weeks of the year showed, there are windows when investors will go longer than expected.
The topic of hiring is always a contentious one, but especially so in 2021, amid the voracious bid for talent as the business and financial words emerged out of lockdown and put into action expansion plans and new strategies. Meanwhile, the impact of Brexit was still being felt, which perhaps goes some way to explain why a fair few of our bankers thought the UK would see small scale job cuts. But on the whole, respondents believe 2022 will be another hot year for talent, with hiring expected across all our countries and regions. Goodbye London, hello Dubai?
GlobalCapital heard a lot during the year about the exceptionally strong bid for juniors, with many banks forced to replace deal teams mulitiple times as a result of analysts being hoovered up. We heard, for example, of one bank having to replace a team three times during the life of one particular LBO. According to our survey, though, the bid appears strong for both seniors and juniors. Ahead of bonus season, the number of senior resignations usually peters out. Not so this year.
With the strong bid for talent one might expect renumeration to increase, to improve retention and attract new talent. This is somewhat borne out in our survey, with most respondents expecting directors and managing directors to earn more money in 2022 than 2021, although a high number thought earnings would be flat. Meanwhile, overall sizes of teams look like they will remain about the same or slightly increase.
Of course it's not just about who you work for but where you work. Before the 2016 Brexit vote in the UK, the choices were limited. In EMEA, it was London, with Frankfurt and Paris competing for also-ran status with Munich, Milan and Madrid. Now, thanks to Brexit and many people opting to move back home during the long periods of lockdown, the EMEA capital markets population is beginning to resemble a diaspora. According to our survey, Paris is set to benefit most from the UK's exit from Europe, followed by Frankfurt and New York. Meanwhile, it looks like the relocations out of London are mostly done, although a fair few of our respondents feel that future upheavals due to Brexit cannot be ruled out because they depend on the stance adopted by regulators.
Although Brexit looks (mostly) done from a relocations perspective, its impact is likely to be felt by UK institutions this year, according to respondents. Although many believe US banks will lose market share in 2022, more believe they will gain share. The outlook is less positive for Italian banks and to some extent Swiss firms — perhaps Credit Suisse's problems with Archegos, Greensill and the spying scandal this year have coloured people's views. Meanwhile, the outlook is more positive for French/Benelux, German and Canadian banks.
Debt capital markets are of course a broad church, with lots of different subsets — public sector, financial institutions, companies, emerging markets, securitization. But which ones will thrive in 2022? In our first question — What is your prediction for volumes in the primary EMEA bond markets — most respondents felt next year's volumes would be flat or lower. But when we asked people to predict how each subset would perform they were more optimistic. ESG bonds are expected to be busy, as are FIG and IG corporate bonds and SSAs. High yield will have a tougher time, though, according to DCM bankers, who perhaps fear for the sector amid inflation and rising interest rates. For revenues, rather than volumes, FIG and corporates generate the most optimism.
With broad optimism about volumes broken down by sector, overall there is a strong consensus that capital markets houses will be making more money. Flat or up to 5% more were the most popular answers, although a few punchy bankers think their businesses will make up to 20% more. If they do, we wonder if their renumeration will go up by a smilar amount... It rarely works that way.
One way to try and squeeze more profits out of capital markets is to embrace technology, replacing repetitive manual tasks with blockchains or similar. 2021 saw a proliferation of such platforms, often staffed by former market faces. We asked DCM bankers which disciplines or functions were set for the most exciting tech developments, half expecting them to be in denial about technology's progress and emphasise DCM being a "people business". Instead, our respondents picked out syndicate and trading as those likely to have the most exciting tech future. Even origination is predicted to feel tech's silent embrace. DCMers are perhaps more ready for it after almost two years of doing remote roadshows and pitch meetings from the garden shed via Zoom.
Governments and central banks have repeatedly come to the markets' rescue since the financial crisis of 2007-8, making their roles and policies more critical than at any other time in the history of the Euromarkets. What central banks will do next year with interest rates and their quantitative easing programmes was the big question of the last six months, at least until Omicron crash-landed on to the scene. Inflation is back, although there remains the question about what sort it is — transitory or structural. At 6.2% in November, it's hard not to feel US inflation is anything but structural, and that was the conclusion of the Federal Reserve at its meeting on December 15. Under normal circumstances high interest rates would be swiftly applied. But of course Omicron's arrival means the world is anything but normal, and makes next year's outlook even more clouded and uncertain. But here's what DCM bankers thought the Fed and European Central Bank would do next year, before the new variant arrived.
How market participants would react to the easing of lockdowns and attempt to get back to pre-pandemic ways of going about their business was one of the fascinating questions of the year. Once summer holidays were over, it looked like people were quickly getting back to normal — faster than perhaps anyone expected. Business travel returned in earnest (after 18 months of being grounded, the idea of having to be at the airport before dawn sounded almost exotic and glamorous). Offices were fuller than at any point since March 2020 and in-person events like IMN's Global ABS conference restarted. Most respondents thought this would continue into next year, but they hadn't heard of Omicron when they were filling in the survey. The responses to the chillingly prophetic d) We'll be in and out of lockdowns because of new variants and high infection levels in Question 21 would have been very different if given just a month later.
And finally, some good news… expectations are that the supply of green, social and sustainability bonds will continue its almost supersonic trajectory into 2022. There remain plenty of borrowers from all sectors that have yet to join the GSS club, but they will feel increasingly compelled to do so, whether out of peer pressure, investor pressure, to get cheaper funding or because it symbolises a real commitment to the environment or society. Meanwhile, the choice of formats is growing. The volume of sustainability-linked bonds has grown sharply this year, with more and more borrowers increasingly comfortable tying the cost of their finance to hitting future ESG targets. One of the attractive qualities of SLBs is that borrowers that might struggle to issue use-of-proceeds green or social bonds (because they don't have enough suitable assets or they operate in high polluting sectors, for example) can issue SLBs instead and therefore align their financing with their contribution to the great and necessary transition to a low carbon economy.
