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Global securities lending revenues increased by 12% YoY in
December, with $909m in monthly revenue the most for any month
since June, when revenues totaled $971m. That marks the fourth
consecutive month of increasing returns, albeit starting from
2020's least remunerative month in August. US equity revenues
continued to trend higher throughout December, as the IPO market
turned white-hot. Equity ETFs also saw an increase in borrow
demand, with loan balances reaching an all-time high on December
21st. In this note we will review revenue drivers from December
within the context QTD and YTD results.
Americas Equity
Americas equity revenues came in at $434m for December, a 32%
YoY increase, and the largest monthly return since July ($436m).
The upswing was largely the result of increased special balances,
with average fees increasing 26% MoM, however loan balances also
increased by 10% MoM. Americas Q4 equity revenues of $1.0bn reflect
an increase of 4.8% YoY.
US equity revenues came in at $408m, a 49% YoY increase, and a
similar MoM increase. The most revenue generating US equity in
December 2020 was Quantumscape Corp (QS) with just over $60m, an
impressive feat considering Quantumscape only went public via a
SPAC combination on December 4th. The surging demand for QS shares
was emblematic of borrow demand for recent SPAC and conventional
IPOs, which reached new heights in December. US equity "special"
balances, defined here as loans with a fee greater than 500bps,
increased 51% MoM from an average of $11.1bn in November to $16.7bn
in December (nearly reaching the $18bn peak for 2020, observed in
June).
Utilizing the IHS Markit Situational Analytics dataset we
aggregated current and former SPAC IPOs which went public since the
start of 2018 to review the impact on overall US equity finance
revenue. In December current and former SPACs delivered $105m in
equity finance revenue, 26% of all US equity revenue. The December
SPAC revenue is just over 3x the November tally, however it's still
only the 2nd most revenue generating month of 2020. In July Nikola
Motors generated $106m in revenue, 95% of the recent SPAC IPO
total; In December the most revenue generating recent SPAC was
Quantumscape, which generated 61% of the SPAC total.
Borrow demand relating to non-SPAC IPOs was also strong in
December, with the 2020 vintage of US IPOs generating $62m in
equity finance revenue, more than doubling the November return.
Canadian equity lending returns held steady MoM but remain well
below the YoY comparable, which has been the case since March.
December revenues of $25m reflect a 53% YoY decline. Cannabis
related returns have declined steadily as increased issuance has
translated to additional lendable shares and lower fees. Canadian
equity average specials balances increased by 9% MoM but remain
less than half the average observed over H1 2020.
European Equity
European equity revenue increased 26% YoY for December,
following November where revenues increased by 25% YoY. The
European upswing continues to be concentrated in relatively few
equities. EMEA specials balances declined MoM, partly driven by
demand relating to the November Unibail EGM subsiding by early
December. German equity lending revenues continue to be bolstered
by Varta Ag, which delivered $16.9m in November revenue, however
the German battery maker was upstaged as the top revenue generating
security globally after four consecutive months atop the leader
board. German equity lending revenues totaled $30.4m for November,
an 86% YoY increase.
French equity finance revenues were boosted by Casino Guichard
Perrachon Sa, owing to the average borrow fee reaching the highest
level since January 2020, a four-fold increase since August, while
the firm's increasing share price boosted on-loan balances.
Asia Equity
Asia equity finance revenues notched a small win with December
being the most revenue generating month of Q4, however the YoY
shortfall persisted with December completing a year where each
month delivered less revenue than the 2019 comparable. The largest
market, Japan equities, delivered $49m in December revenues, a
decline of 17% YoY and a 15% increase compared to November. Hong
Kong equity finance revenues continued to trend higher in December
with $32m in revenue reflecting a 27% YoY increase and the most
monthly revenue for 2020. The short sale ban in South Korea
continues to limit lending revenue, with $9m in November revenue
reflecting a 79% YoY decline. The South Korea ban is set to remain
in place until March; Malaysia allowed their short sale ban to
expire at the end of December. Asia equity special balances
continue the fledgling recovery from the 2020 low point in early
November, with December's $7bn in daily average special balances
being the most for any month since July.
Exchange Traded Products
Global ETP revenues totaled $38m for December, a 71% YoY
increase, however the MoM increase was only 6% compared with
November. The $38m in December return was the most for any month
since March, narrowly exceeding June and November. ETP loan
balances reached an all-time high on December 21st, $90bn. The
increase in balances was partly driven by the SPDR S&P 500 ETF
Trust (SPY) around the Tesla inclusion to the S&P 500; SPY
on-loan balances reached $16bn on Dec 21st. On-loan balances
averaged $76bn, a 55% YoY increase and the highest average balance
for any month of 2020.
The recent upswing in ETP revenue has been primarily driven by
equities, which generated 84% of December revenue, up from 82% in
November. December raised the YTD equity contribution to 77%, with
high-yield and loans products having generated substantial returns
in Q1. The top revenue generating ETPs in December were primarily
focused on US and Chinese equities.
Corporate Bonds
Corporate bond lending returns came in at $33.5m for December, a
21% decline YoY, and a 4% MoM increase. Corporate bond lending
revenues have been on a steady decline since the post-GFC peak in
2018. Central bank support for global credit has dampened borrow
demand while lendable value has increased steadily since April,
however December did see a 2% increase in average on-loan balances,
$186bn, bringing balances at positive spreads to the highest level
since February's $198bn.
Government Bonds
Government bond lending activity has substantially returned to
pre-COVID levels in terms of spread and reinvestment revenue.
Global government debt lending revenues totaled $128m in December,
a 13% YoY increase and the largest monthly return since May. The
upswing was primarily driven by an increase in on-loan balances. US
government bond lending revenue came in at $74m for December, a 20%
YoY increase, and the most monthly revenue since May. Returns from
lending European sovereigns were $42m for December, a 9.3% YoY
increase, and the largest monthly return of 2020.
Conclusion
For the
full-year 2020 global securities finance revenues totaled
$9.3bn, a 7.4% YoY decline. The year ended on a high note, with
December generating the 2nd most revenue for any month of 2020.
Looking ahead, the IPO market in the US is likely to generate a
lineup of borrow demand events ahead lockup expiries throughout
2021, which will only be bolstered by the surge in SPAC deals. In
Europe the expected reinstatement of dividends in 2021 will likely
boost lending returns and arbitrage trades driven by capital
raising, such as rights issues and convertible bonds, may continue
to drive EMEA specials balances as well. In APAC the conclusion of
short sale bans may be a tailwind for 2021, while some markets such
as Hong Kong are currently seeing increased borrow demand. At the
end of tumultuous year there is cause for optimism heading into
2021!
Posted 11 January 2021 by Sam Pierson, Director of Securities Finance, S&P Global Market Intelligence
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