Citigroup Sees Economic Slump Tempering Underwriting Rebound

Global debt and equity underwriting will probably remain unchanged next year as sluggish economic growth and an uncertain outlook restrain demand for securities, said Tyler Dickson, who oversees the business at Citigroup Inc. (C)

“In 2013, we expect similar activity levels to 2012, from large investment grade companies to small high-growth initial public offerings,” Dickson, head of global markets origination for the New York-based bank, said in an interview in Tokyo on Oct. 13. “Given the environment, volume will be lower than peak levels, but all the major capital markets will be open.”

The International Monetary Fund warned last week that the global economic slowdown may deepen without a resolution to the European debt crisis and the looming U.S. fiscal cliff. Growth in countries such as Brazil, India and China is faltering, and European Union leaders meeting this week will need to tackle safeguarding the currency. Investors are less willing to bet on first-time share sales against this backdrop, said Dickson.

“If you’re a public company, you have a lot of opportunity,” Dickson, 45, said. “Unless there’s a seismic shift in appetite for riskier assets and stronger outlook for growth, we expect that the IPO market will remain selective.”

Citigroup this year jumped to second among underwriters of global stock sales, the highest since 2007, from sixth in 2011, according to data compiled by Bloomberg. The firm, the third- ranked arranger of global bonds sales this year, today posted a 32 percent jump in debt underwriting revenue in the third quarter to $590 million. Equity underwriting revenue rose 34 percent to $142 million, Citigroup said.

The firm gained “wallet share” this year in all major products and in most regions, the firm said as it posted a $468 million profit for the quarter.

Bond Offerings

Companies selling stock to cut debt and private equity firms offering shares in businesses they own made up the bulk of equity capital markets activity this year, according to Dickson. That trend will probably continue in 2013, he said.

Dickson said he expects more bond sales than equity offerings and the U.S. market will continue to dominate.

“There will be a bid for less risky and riskier assets with a bias for fixed income,” he said. “This year was heavily weighted by the U.S. market, with much less activity in the international markets and that probably carries over to 2013.”

The pace of IPOs slowed last quarter to the second-lowest level since the financial crisis. In Europe, the pace is at a three-year low as the sovereign debt crisis weighs on deals.

In Asian markets such as Hong Kong, accounting missteps involving mainland Chinese companies that were listed in recent years has sapped investor demand for IPOs.

‘Adjustment Period’

“Asia IPO markets are going through an adjustment period based on investors’ changing views on growth,” said Dickson. “Europe has consistently been more challenged for IPOs, with more of boom-or-bust windows than the rest of the world. We expect that to be the case given continued challenges with the euro zone.”

Notwithstanding the slump, Dickson said he doesn’t expect to cut jobs.

“We feel properly positioned and sized,” he said. “Citi has been very disciplined with respect to revenue generation and cost,” he said. “We will remain focused on both.”

While some banks are scaling back their operations that trade stocks in Europe and arrange IPOs, that trend hasn’t translated into less competition, Dickson said.

“In the current low volume environment, competition is fierce for all business activity in Europe,” he said.

To contact the reporter on this story: Elisa Martinuzzi in Tokyo at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.