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Investment banking from home thrived under COVID-19, but some fear losing their touch – The Globe and Mail

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Cary Kochman kicked off a sale process for U.S. printing services provider InnerWorkings Inc just as lockdowns to limit the spread of the novel coronavirus took effect in March.

The Citigroup Inc global co-head of mergers and acquisitions, who was advising InnerWorkings on clinching a deal, had to rewrite a play-book he used for most of his 30-year career.

There would be no on-location due diligence for perspective buyers and their lenders. Tours were carried out virtually by people walking around the company’s facilities with iPads. Negotiations were done remotely.

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By July, Kochman had secured a $177 million sale of InnerWorkings. The price was equivalent to where the company traded as the March lockdowns began, and a 127% premium to its market value the day before the announcement.

His bank’s investment banking revenue was up 25% year-on-year in the second and third quarters as companies took advantage of a stock market rally and cheap financing to pursue dream deals and capital raises.

While remote working has paid off handsomely, Kochman and his peers predict bankers will hit the road to meet clients again once the COVID-19 pandemic subsides.

“We are winning new business and beauty contests, but it is hard in this moment to replace an existing and trusted relationship,” Kochman said.

Reuters interviews with more than two-dozen investment bankers show that many shifts in their business brought about by the pandemic, such as remote due diligence and smaller office footprints, are here to stay even once COVID-19 vaccines have been successfully rolled out.

But they also reveal fears among some about losing their competitive edge as they pitch digitally for business, amid concerns that younger bankers are falling behind.

“The flexibility of being able to work remotely is good, but when it is safe again, young professionals have to be in the office and travel with senior bankers. That is how they learn,” said Robert Kindler, Morgan Stanley’s global head of mergers and acquisitions.

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Deals have boomed across the board for Wall Street during the pandemic, as corporate financing remained cheap and plentiful thanks to support from the Federal Reserve. Global debt issuance is up more than 30% to $10.1 trillion year-to-date.

Initial public offerings around the world are up 25% year-to-date, totalling $220 billion, and while mergers and acquisitions globally dropped 7% year-to-date, to $3.4 trillion, this is their fourth-strongest year of the last decade.

“We can now get to investors around the world in an IPO road show, which used to be seven to nine days on average, in five to seven days,” said Kim Posnett, Goldman Sachs Group Inc’s co-head of global investment banking services. She added that Goldman Sachs executed two-thirds of mergers and acquisitions it advised on in 2020 “completely virtually.”

Many administrative functions of deal making will continue to be carried out remotely when the pandemic subsides, bankers say. The real estate footprint of investment banks is also set to be reduced as bankers spend more time outside the office.

“We had been thinking about taking on another floor (at our New York headquarters) as we were growing so much, from about 40 bankers to more than 100 now, but we have shelved those plans. The only people who really need to be in the office are junior bankers, as they need the training and the comradely,” said PJ Solomon LP Chief Executive Marc Cooper.

IN-PERSON MEETINGS

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Switching to a virtual world has also taken a toll on bankers. Some complain about spending 18-hour days on back-to-back Zoom calls and still being expected to be available in the little downtime they have left.

Many bankers are itching to wine and dine clients or spend time with them on the golf course, concerned they are falling behind as executives tap banking relationships they have on speed dial.

Some pursued client meetings even during the pandemic. Credit Suisse Group AG, for example, allowed some in-person meetings between its bankers and clients this year carried out “in a responsible way,” said David Wah, head of the bank’s newly created client advisory group, which gathers star bankers to advise on megadeals, including semiconductor maker Advanced Micro Devices Inc’s $35 billion acquisition of peer Xilinx Inc.

“I think people have become more accustomed to doing M&A deals virtually, but there remains a strong desire to do some meetings in person, especially aspects of a deal that relate to delicate points of negotiation and integrating cultures,” Wah said.

Over the summer, bankers and their clients frequented golf courses and yacht clubs outside New York, and fine restaurants with outdoor seating in the city. Some donned face shields as a sign of respect.

Left behind are young investment bankers who progressed by shadowing their seasoned colleagues on client trips and in the office. Speaking on condition of anonymity because they were not allowed to speak to the media, junior bankers at several banks expressed concerns about their career opportunities if fewer of their senior colleagues end up working in person with them in the future.

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Supriya Saxena, head of financing and advisory for the Americas at UniCredit, said she focuses on one-on-one virtual meetings with her less-experienced staff to make sure they are progressing.

“A number of them are completely by themselves so it has been trickier for them,” Saxena said.

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Investment

More China coal investments overseas cancelled than commissioned since 2017

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More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.

The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.

Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.

Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.

But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.

China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.

But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.

Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.

Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.

Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.

 

(Reporting by David Stanway; Editing by Kenneth Maxwell)

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Bank of Montreal CEO sees growth in U.S. share of earnings

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Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.

“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”

($1 = 1.2145 Canadian dollars)

 

(Reporting by Nichola Saminather; Editing by Leslie Adler)

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GameStop falls 27% on potential share sale

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Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.

The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.

“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”

Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.

Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.

Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.

AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.

“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”

Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.

GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.

GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.

The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.

In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.

 

(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)

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