Securities lending revenue opportunities incoming
10 August 2020 London
Image: Orlando Florin Rosu/Adobe.com
The upcoming US election, easings of national lockdowns and Brexit are giving Brown Brothers Harriman’s (BBH) senior vice president, Robert Lees, cause to be “cautiously optimistic” for the securities lending market’s H2 performance.
“Securities lending demand faced unprecedented challenges in the first half of 2020,” Lees says, which contributed to a 14 percent year-on-year decline in securities revenue for the period, according to DataLend figures.
However, Lees has used a 2020 mid-year review blogpost to argue that a global unlocking combined with government stimulus packages for industries most affected by the coronavirus pandemic may “ultimately foster greater fundamental asset pricing and create opportunities for stock pickers”.
Entertainment, health and fitness, and travel industries are among the sectors expected to rebound in the second half of the year, although uncertainty remains in the face of a possible second wave of the virus in major economies and globally.
Lees notes that, from a securities lending perspective, “we [BBH] are cautiously optimistic”.
He explains: “We expect that companies will increase their activity in corporate restructuring as mergers and acquisitions, initial public offerings, and capital raising look to increase in the second half of the year as pent up demand returns.”
Moreover, he adds that the impact Brexit and a US presidential election may have on capital markets is expected to be a “positive tailwind for increased returns from securities lending”.
What could have been
According to Lees, at the start of 2020, the securities lending market was shaping up to focus on the ramifications of Brexit and the ongoing trade war between China and the US.
“While we anticipated that matching the asset returns of 2019 was going to be a challenge, particularly in equities, we expected a move to more diverse risk asset returns,” he says. “This, in turn, was expected to result in an increase in securities lending demand with greater conviction from stock pickers to counter what had been a decade long, sustained market rally.”
Instead, the market has seen “unprecedented” central bank stimulus, rock-bottom interest rates and a “deteriorating fundamental outlook,” he continues.
The global securities finance industry generated $3.89 billion in revenue for lenders in the first six months of the year, representing a 13.94 percent year-over-year drop-off, according to DataLend.
The decline in revenue was experienced across both the equity and fixed income markets, as well as regionally across Europe, the Middle East and Africa and Asia Pacific, where year-over-year revenue was down 33 percent and 25 percent respectively.
The only region to buck the trend was the Americas, where revenue increased by 5.6 percent year-on-year for H1.
“Securities lending demand faced unprecedented challenges in the first half of 2020,” Lees says, which contributed to a 14 percent year-on-year decline in securities revenue for the period, according to DataLend figures.
However, Lees has used a 2020 mid-year review blogpost to argue that a global unlocking combined with government stimulus packages for industries most affected by the coronavirus pandemic may “ultimately foster greater fundamental asset pricing and create opportunities for stock pickers”.
Entertainment, health and fitness, and travel industries are among the sectors expected to rebound in the second half of the year, although uncertainty remains in the face of a possible second wave of the virus in major economies and globally.
Lees notes that, from a securities lending perspective, “we [BBH] are cautiously optimistic”.
He explains: “We expect that companies will increase their activity in corporate restructuring as mergers and acquisitions, initial public offerings, and capital raising look to increase in the second half of the year as pent up demand returns.”
Moreover, he adds that the impact Brexit and a US presidential election may have on capital markets is expected to be a “positive tailwind for increased returns from securities lending”.
What could have been
According to Lees, at the start of 2020, the securities lending market was shaping up to focus on the ramifications of Brexit and the ongoing trade war between China and the US.
“While we anticipated that matching the asset returns of 2019 was going to be a challenge, particularly in equities, we expected a move to more diverse risk asset returns,” he says. “This, in turn, was expected to result in an increase in securities lending demand with greater conviction from stock pickers to counter what had been a decade long, sustained market rally.”
Instead, the market has seen “unprecedented” central bank stimulus, rock-bottom interest rates and a “deteriorating fundamental outlook,” he continues.
The global securities finance industry generated $3.89 billion in revenue for lenders in the first six months of the year, representing a 13.94 percent year-over-year drop-off, according to DataLend.
The decline in revenue was experienced across both the equity and fixed income markets, as well as regionally across Europe, the Middle East and Africa and Asia Pacific, where year-over-year revenue was down 33 percent and 25 percent respectively.
The only region to buck the trend was the Americas, where revenue increased by 5.6 percent year-on-year for H1.
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