$836m in January securities finance revenue
- January revenues dropped by 15% YoY
- ADR borrow demand declined
- Taiwan and South Korea lead APAC upswing
- Continuation of the slump in EMEA & American equity
revenue
Global securities finance revenues totaled $836m in January, a
15% YoY decline. January saw the lowest global equity revenue since
February 2021 which can be attributed to narrower EMEA and Americas
equity spreads. The general rise in borrow demand seen last year
for ETPs, Corporate Bonds and ADRs took a turn for the worse for
ADRs, as revenues fell by 58% YoY. In this note we will discuss the
drivers of January revenue.
APAC Equity
APAC Equity Finance revenues totaled $175m in January, a 37% YoY
increase but a step down of 13% MoM. The region continues to boast
the highest average fees globally at 0.99%, a 29% increase YoY and
balances remained steady at $207b. Taiwan and South Korea both
continue to lead the region in revenue, producing $49m (+178% YoY)
and $35m (+324% YoY) respectively. Australia produced $21m in
January, a 160% YoY increase and 47% MoM increase.
Kakaobank Corp (323410) took the third spot on the top five for
the second month in a row and video game developer Krafton Inc
(259960) dropped one spot from last month. The top spot was taken
over by BHP Group which announced they would delist from the London
Stock Exchange effective January 31st. The delisting led to the UK
shares trading under the ASX listing as UK holders sold their
positions, creating an arbitrage opportunity between the two.
Americas Equity
Americas Equity Finance revenues totaled $269m for January, a
decline of 44% YoY but a slight increase of 5% MoM. Average fees
ticked up 12% MoM but still trailed last year’s numbers by 50%.
Even though specials balances saw a decrease in January overall
average balances had an increase of 13% YoY.
US Equities contributed $244m in revenue in January, a decline
of 46% YoY, when the markets were moved by new SPAC deals and the
retail short squeeze phenomenon. In step with the Americas, US
Equities saw a decrease in average fees (-52% YoY) and an increase
in average balances (12% YoY).
The top two revenue generating names in US Equites came from two
different stories from the SPAC life cycle. Lucid Group Inc (LCID)
generated $45.37m from an increase of 799% in average fees and 28%
in average balances headed into their post-merger lockup expiry.
Digital World Acquisition Corp (DWAC) continued its rise in the
monthly rankings with $14.46m in revenue due to increases in
average fees of 124% and average balances of 29%. With their
business combination scheduled to close sometime in Q1, this will
be a name to track.
European Equity
EMEA Equity Finance continued its downtrend in January with
revenues of $80m, a 29% YoY decrease. France (-21%), Germany (-60%)
and UK (-44%) revenues all declined compared to the same period in
2021 and are not showing any new specials activity as we begin 2022
as we recorded a drop of 30% YoY in average fees. There were some
bright spots in the Nordics with Sweden maintaining monthly
revenues since December, generating $8m and up 17% YoY. In Norway,
borrow demand for sustainable energy stocks has produced some new
equity finance opportunities. Norway delivered $4m of revenues in
January, up 60% YoY, with Nel Asa contributing 31% of the total and
entering the EMEA top 10.
Varta (VAR1) remains at the top of the list, generating $4.27m
in January. BMPS continues to bolster equity finance revenues with
$3.71m and 40% of the total for Italy.
Depository Receipts
Revenues from lending American Depository Receipts (ADRs) saw a
steep drop of 58% YoY and 54% MoM, totaling $21m in January,
marking it as the lowest monthly revenue since October 2020. ADR
securities finance revenues were led by BHP Group ADR (BHP) and Bit
Mining Ltd (BTCM), a Chinese bitcoin mining firm. BHP contributed
12% of the ADR finance revenues with $2.5m for the month of January
off the delisting of the company from the London Stock exchange.
Loan balances for ADR’s decreased by 25% YoY, combined with
narrower fee spreads (a 43% YoY fall), contributed to the downswing
in January revenue.
Exchange Traded Products
Global ETP revenues totaled $59m in January 2022, a 68% YoY
increase, however there was a 5% decline compared with December.
The increase in loan balances, up by 24% YoY, continued to be the
main driver of the YoY growth in revenues. The average fee
increased to 0.78%, the highest since April 2021, and up by 34%
YoY.
The iShares iBoxx $ High Yield Corporate Bond Fund (HYG)
maintained its strong performance, delivering $9.3m in revenue and
contributing 16% of all ETP revenues. The ARK Innovation etf (ARKK)
was the top ranked equity product, ranking 3rd across all ETPs. The
latter delivered $3.23m in revenue, primarily driven by an increase
in average loan balances, reaching $1bn for the second month in a
row.
Corporate Bonds
Corporate bond lending revenues came in at $68m for December, a
101% YoY increase and 7% MoM increase. Demand continued to
increase, following the 2021 trend with average balances up 44% YoY
and 3% when compared to December 2021. The increase in revenue can
also be attributed to the uptick in average fees of 39% YoY and
average utilization of 35%.
The Expedia Group Inc 0% note due February 2026 sat on top of
the charts for a second month in a row up another 15% MoM. Also
holding firm in the second spot is the Scih Salt Holdings Inc
6.625%, bringing in $.664m for January, up 23% MoM.
Government Bonds
Fee-spread revenues of global sovereign debt totaled $150m for
January, a 12% YoY and a 1% MoM decline. Government bond borrow
demand remains robust with $1.32T in positive-fee global balances
for January reflecting an 18% YoY increase. US government bond
lending revenue came in at $77.8m for January, a 2% YoY and 6% MoM
drop and the lowest total since November 2021. The Nov 2031 UST 10Y
note (91282CDJ7) took the top rank on the revenue table from the
Nov 2023 UST 2Y (91282CDM0), followed closely by the Feb 2031 UST
10Y (91282CBL4). Lending European sovereign debt yielded a return
of $52.6m for January, a 22% YoY and 7% MoM increase.
Total government bond lending revenue for agency programs
including reinvestment returns and negative fee trades increased 5%
YoY as a result of a 10% YoY increase in intrinsic fee income and
2% increase in reinvestment returns YoY. Average balances increase
6% YoY and average borrow costs were up 8%.
Conclusion
Global securities finance revenues dropped by 15% YoY in
January, the drop-off marking it as the lowest monthly revenue
since April 2021. Amidst increasing concerns over inflationary
curbs and the Federal Reserve timeline announcement to raise
interest rates, the increasing borrow demand for US Treasuries took
a turn along with rising 10Y yields. A lack of hard to borrow
stocks weighed heavily on the narrowing EMEA & Americas equity
revenues, which were thrown into further disarray as rising
interest rates pressured technology stocks making their rich
valuations look less attractive. ADR revenues declined by 58% YoY
the steepest drop since October 2020, the dip driven by the
collective decline in the borrow demand of the top ADR revenue
generators. Borrow demand for corporate bonds continued last year’s
trend, with January monthly revenue seeing a 101% YoY growth.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
Follow Financial Services
