Falling stocks force banks to market

It may have marked the worst period of stock market performance since the Dirty Thirties, but the fourth quarter of 2008 saw a surge in equity issuance, according to the Investment Industry Association of Canada.

Equity financings for the final three quarters totalled $12.7 billion, thanks in large part to the financial sector’s need to shore up its balance sheets. The industry accounted for 75% of total issuance.

Royal Bank led the pack, issuing $2.83 billion worth of stock, or 22.3% of the total for the quarter. Manulife Financial was not far behind, with nearly $2.28 billion (17.9%) in issuance, while Toronto Dominion Bank and Bank of Montreal issued $1.6 billion and $1.15 billion, respectively.

Common equity issuance had been on the decline for the first three quarters of the year, but staged a comeback in Q4, doubling from the previous quarter to raise $10.8 billion in capital.

Full-year small business issuance, defined as anything under $10 million, fell 45% from 2007. Secondary offerings made up the bulk, at $8.3 billion, while IPOs and private placements fell below 2007 levels.

Common equity IPOs totalled just $1.3 billion for the full year, with virtually nothing coming to market in the final quarter.

Issuance of preferred shares remained stable, totalling $1.4 billion in Q4, and $6.8 billion for the full year. Financial institutions made up 84% of preferred issuance.

The first quarter of 2009 has seen even more issuance of preferred stock, again led by the banks. TD, RBC, CIBC and National Bank all closed successful preferred share offerings in January, and RBC and CIBC announced additional offerings following their earnings announcements today.

Full-year equity financings totalled $42.4 billion, which marked a decline of 23% from 2007 levels.

The S&P/TSX Composite Index fell 35% last year, with 24 percentage points coming off in Q4. The IIAC report deemed trading volumes for the quarter as “robust,” with 153 billion shares trading hands on the TSX and the TSX Venture exchanges.

(02/26/09)