The window.
For capital markets bankers, it is more than just a glass opening allowing in light or air. It has a transcendental and not just translucent meaning. A window represents the moment in time when you get deals done.
Windows aren’t always open. Bank holidays, summer vacations, proximity to results or stale numbers can all put a hold on your plans. So if market conditions are favourable, issuers are urged to hit (but not smash or shatter) that window.
If market conditions are favourable, issuers are urged to hit (but not smash or shatter) that window
Elections add another layer of complexity. Launching a deal during an election period? It’s often awkward and ill-advised. The political calendar unfortunately doesn’t respect the scheduling priorities of investment bankers or their issuer clients. Sometimes elections happen at the most inopportune moments — just look at the effect the French election seems to be having on the supranational and agency bond market lately.
And 2024 is shaping up as a year of election interference. The French legislative elections and UK general election will be covering the end of June and first week of July. US elections will occupy everyone’s attention in early November.
You have only so many windows to launch. Miss a window and you might not get another. Bankers and issuers are left wondering: push forward or wait?
One way to look at the issue is to assess whether the result of the election hangs in the balance. For real examples, we can turn, as Dickens did, to comparisons between London and Paris.
The UK election seems like a foregone conclusion, with polls pointing to a Labour landslide; the only uncertainty is whether it will be a rout or total wipe-out of the Conservatives. Capital markets bankers can probably advise their clients to plough ahead, as investors have baked in the outcome.
France, however, is a different story. The snap election could portend a prolonged period of instability, possibly resulting in a fragile coalition that might be headed by a far-right prime minister. Opinions vary on Macron’s strategy, but markets have already discounted much of the bad news. This could mean it’s still a good time to hit the window.
The US election is another wild card. But the breathless media coverage means that elections are often — as Macbeth would say — “a tale told by an idiot, full of sound and fury, signifying nothing.”
And the 2024 showdown between Joe Biden and Donald Trump will likely have an unprecedentedly high noise-to-signal ratio. Both presidential candidates are known quantities, having each served four years in the Oval Office and occupied the limelight for nearly four decades.
And for all their many faults, markets have powered ahead regardless. The right advice may be just to put on political earplugs and launch your deal if the market conditions hold.
Indeed, there are lots of logical reasons to ignore political elections, at least in Western countries. Journalists hype up the policy differences. Dickens, in fact, ends the opening to A Tale Of Two Cities paraphrased earlier as follows: “… in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
But the realities and practicalities of public office have a way of constraining even the most heedlessly headstrong leaders. In fact, elections rarely move markets much and when they do, the effect is usually short-term, with a quick reversion to the mean. Markets have a way of bouncing back from political setbacks. The conspicuous exception was the Brexit referendum in 2016: sterling traded off and still hasn’t recovered.
But Spock-like reasoning doesn’t always drive financial advice. There’s another reason to urge caution about launching into an election. Or really a meta-reason, because it doesn’t go to the substance of the election result.
Rather, issuers and bankers are well-advised to hold off so as not to convey an impression of imprudence. Investors prefer dealing with intermediaries and issuers that seem thoughtful, judicious and sensible. Sensible people don’t tempt fate unnecessarily; sensible people wait until after an election to raise money.
Investors have little or no understanding of, or interest in, the timing constraints that companies might have. They don’t know or care about concerns like financial statements going out of date or the desire to avoid competing issues. Nor are they fussed about the desire to capitalise on good market conditions; if conditions deteriorate and you didn’t launch, investors will feel relieved to have dodged that bullet.
The upshot is that you can maybe price your London IPO the first week of July, but investors will ask why you just don’t wait a week, if only out of respect for the UK electoral process. The question is even more pronounced if you’re a French company: it seems rashly impolitic (in every sense of the word) to go ahead.
So, whatever the logic, the safe advice is to postpone launch until after elections. Just as nobody ever was fired for hiring IBM, as the old saying went, nobody will ever blame you for advising a client to wait until the political dust settles. It makes you look mature and wise. Just hope you don’t miss your window.