U.S. Stock Sales Collapse to Lowest in Decade on Build Up to War

(Bloomberg) -- New stock offerings in the U.S. slumped to the lowest in more than a decade last month as the slide into war in Ukraine and rising borrowing costs sent share prices tumbling.

Initial and secondary public offerings collapsed 92% to $5.95 billion from the year earlier, according to data compiled by Bloomberg. That's the least since September of 2011 as falling stock markets pushed a series of IPOs below their offering prices.

“Underwriting always suffers with an initial equity market decline,” said Stifel Chief Equity Strategist Barry Bannister. “Only when recapitalizing companies becomes a driver is equity issuance likely to pick up again.”

But it isn't just a loss for investment bankers. Ready access to equity financing is a keystone of the economy, enabling issuers to fund acquisitions, plug holes in their balance sheets, fund growth projects, or facilitate smooth exits by large holders.

“Equity financing drives the economy's future,” University of Michigan professor Erik Gordon said in an interview. “When it is done rationally, it provides capital to companies that will produce the goods and services we will value highest and the best jobs. Too little equity financing leads to less progress and prosperity.”

The most obvious reason for the slowdown was widespread risk-off trading, fueled by mounting geopolitical tensions that peaked with Russia's invasion of Ukraine. The flight to haven assets and the ensuing volatility weighed on riskier investments such as IPOs -- leading to a sharp decline in deal sizes and a near-empty listings calendar.

Secondary offerings were also slowed by earnings season, which is still unfolding for many of the less mature companies that rely on equity funding.

In case that wasn't enough headwinds for one month, news of a regulatory probe into Wall Street's block trade practices cast an added shadow over the market. The headlines placed a magnifying glass on syndicate desks and their buy-side counterparts at a particularly critical juncture for dealmaking.

While other avenues to capital -- such as debt or private markets -- may remain available to some, a comeback in public stock sales appears key to a broader recovery for the U.S. economy.

“Too little equity financing leads to less progress and prosperity,” Gordon said.