Gone are the days of easy lending, cheap money and zero-interest deals. Here to stay: shifting rates, currencies, and inflation that will define the new age in capital markets, according to Bank of America's Elif Bilgi Zapparoli.
"We have entered into an era that is more normal compared to what we've seen in the past decade. The cost of risk will no longer be zero," Bilgi Zapparoli, co-head of global capital markets at BofA, said in an interview. The impacts of interest rates, foreign exchange and inflation in balance-sheet management will become focal points going forward, she said.
This year, capital market deals hit the doldrums with companies and investors remaining on the sidelines. The recent bouts of market turmoil sapped appetite for traditional initial public offerings and SPAC transactions that would otherwise bring new companies to public markets. There were 1,721 IPOs generating $199.6 billion this year, down from 3,369 deals worth $668.5 billion a year earlier, according to data compiled by Bloomberg.
Years of near-zero borrowing costs from the Federal Reserve and its peers helped drive markets. Then central banks jacked up interest rates in response to inflation risks, causing activity to dry up.
"It's been difficult to see volumes go down so much, but it's also encouraging to see we're entering an environment where some will benefit and some won't," said Bilgi Zapparoli, who runs a team of nearly 1,000 bankers. "We were in a decade where everything went up and most benefited. Now is different."
Bilgi Zapparoli was named co-head of global capital markets in 2018. She joined Bank of America in 2010 as a country executive of Turkey, and was head of global sovereign wealth funds coverage. In 2016, she was appointed co-head of Asia Pacific global corporate and investment banking. She also worked at Goldman Sachs Group Inc. and Morgan Stanley in New York.
Bank of America's capital markets group used the slowdown in 2022 to listen to clients, understand their needs and prepare for change, she said.
"Our results will show once the activity comes back," Bilgi Zapparoli said.
JPMorgan Chase, Bank of America and Citigroup will probably keep their longtime global debt-underwriting lead in 2023, with recovery of fees helping revenue, Bloomberg Intelligence analysts said in a report this month.
Conversations with Bank of America's corporate clients have picked up recently, Bilgi Zapparoli said. In busier years, the bank had been focused on deal execution. In slower periods such as 2022, the focus is on strategic approach to debt and equity issuance, rates management and hedging.
If parts of capital markets were frozen in 2022, Bilgi Zapparoli predicts 2023 will bring a thaw. Once companies and bankers are able to calculate the cost of debt or risk premium for their business, "you'll start to see IPOs come back." Private markets, which sped ahead, will come back in line with public, she said.
"This was a transition year. Next year will be a landing year, then we'll take off."
