In the throes of sinking stock and bond markets. Wall Street securities firms have a new concern to add to their list of worries -- the lightest corporate underwriting calendar in recent memory.
The week of Feb. 13 was notable because not a single corporation came to the market to raise money through a common stock, preferred stock or bond offering --an occurence that no one on Wall Street can recall in modern market history except for the traditional lull during the Christmas New Years holiday period.
A tabulation by the Investment Dealers' Digest for January shows total corporate financing of $1.86 billion, down more than 40 percent from the same month in 1977. although totals for February are not yet in, the month is expected to weigh in at least as light as January.
And the supply of announced new underwritings for the next 30 days totals a slim $1.177 billion. That is about one-third of the monthly average in 1977 when corporate underwritings for the year totaled $36.7 billion, in turn down 13 per cent from 1976.
Almost all of those corporate issuers who are coming to market are public utilities which face the continuing and unavoidable need to finance large capital projects. That merely emphasizes the almost total absence of industrial borrowers.
With many securities firms already under considerable profit pressure from the low daily turnover in the stock market, cutthroat competition on institutional brokerage rates, and trading losses on both stocks and bonds, the dearth of new underwritings only is making matters worse.
Of last year's estimated $2 billion in brokerage industry revenues, about 20 per cent came from the underwriting and distribution of corporate securities, E. F. Hutton & Co. President George L. Ball estimated.
"Obviously the effect on any securities firm is adverse when there is such a paucity of underwriting business being done," said Ball.
"For the last several months, conditions in the securities industry have not been good," said Virgil Sherrill, president of Bache Halsey Stuart Shields Inc., whose parent firm, the Bache Group Inc., last week sliced its dividend in half because of a sharp drop in earnings.
Sherrill cited the renewed rise in interest which has depressed bond prices; the general decline in stock prices which has affected brokerage commissions because, for example, firms charge less to to buy and sell a stock trading at $20 than at $30 a share; the decline in average stock market volume to well below the 20-million-share-a-day level which is now considered break-even; the effects of the winter's blizzards in further curtailing business; and the lack of corporate underwriting.
"The January calendar, from an underwriting and investment banking point of view, was one of the worst we'd ever seen," commented Sherrill. "But we said that before February came along.And March also looks pretty barren."
sherrill said that although diversified firms such as his own --which is already the product of several mergers -- would ride out the current doldrums, "This kind of period just accelerates the pace of mergers on the Street."
The current Wall Street slump is not yet as bleak as the darkest days of 1974. Then, double-digit inflation and double-digit interest rates had the markets on their knees and the securities industry, as a whole, in the red, but the pressure on many firms is said to be intense, and merger talk is rampant. The only solid areas of profitability are in the merger-acquisition and related risk-arbitrage field -- though this activity is limited to a handful of firms --as well as in municipal bond underwritings which have held up better than corporate issues.
Wall Street experts meanwhile cite a number of reasons for the current corporate underwriting drought, ranging from the depressed state of the securities markets to a general lack of confidence.
"The stock market is down and companies are more inclined to do equity financing when their shares are moving up," said H. Fred Krimendahl II, the Goldman. Sachs & Co. partner in charge of corporate finance. "Interest rates have also been increasing sharply since the end of last year and that has affected some companies that would have come to market," Krimendahl said. "And most large companies are also pretty well financed today."
"There is a reluctance to make major commitments on the whole capital spending side," said Richard B. Fisher, the Morgan Stanley & Co. managing director responsible for trading and sales. "I think it's a lack of confidence in the entire business climate. Business is very uncertain about what will happen in some areas like energy and tax policy, and that in turn affects the returns they get on new investments."
Fisher sees "no sign for the next 2 to 4 months" that the underwriting tempo will pick up.
But others think that a turnaround could happen sooner. James W. Davant, chairman of Paine Webber Inc., believes many corporations are waiting until they have tallied all of their 1977 financial figures before proceeding to raise capital, and that a pickup in underwriting filings therefore should become discernible by the end of March.
"It's a bad period and business is not good, but we've seen a lot worse than this," said Davant. "After all, it's a cyclical business."