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Wall Street will make money from SPACs for a long time to come


Investment banks have raised $ 15 billion since the beginning of last year from underwriting and advising SPAC companies, according to research firm Coalition Greenwich. A minimum of $ 8 billion of this profit has yet to be accounted for and will be reflected in bank results over the next two years.

One of the main reasons is that US dummy IPOs are paid in installments, with less than half of their standard 5.5% fee paid upon listing completion. The remainder is paid after SPAC finds a suitable property – which can take up to 24 months – and does not complete the merger.

This is good news for leading companies such as Citigroup Inc., Goldman Sachs Group Inc. and Credit Suisse Group AG, given that regulatory concerns are starting to raise concerns in the market. Previous SPAC listings will “significantly contribute” to equity capital markets returns through 2022, said Amit Goel, co-head of European banking research at Barclays Plc.


“This is not the end of the game for the banks,” said Nikolai Rusanov, professor of finance at the Wharton School of Business at the University of Pennsylvania.


Dummy companies completed $ 181 billion in U.S. listings in the past five quarters, according to Bloomberg, accounting for 55% of the total raised in New York IPOs. At the height of the frenzy, more than 50 SPAC companies unveiled plans to raise a total of $ 17 billion during the week in February.

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Now the pace of new deals has slowed to a minimum, and in the last week of April, only five SPAC companies submitted registration documents. American regulators have been warning investors about the potential risks associated with such companies for several months. Last month, they scared dealers by using different accounting methods for one aspect of the SPAC deal, forcing many companies to revise their results.

SPAC business will continue to be profitable

Although banks will continue to receive deferred underwriting commissions over the coming quarters, regardless of these hurdles, there are risks to unreported profits. The main one is related to the fact that SPAC will not be able to find a suitable object or that many SPAC investors will buy back assets before the deal takes place.

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However, as noted by Eric Lee, head of transactional banking at Coalition Greenwich, most of these fees will go into banks’ gross revenue.

Banks also have many other ways to capitalize on SPAC companies that are already listed, from helping with targeting to advising startups looking to go public through SPAC. In addition, they can arrange for the sale of shares – private equity – to support the merger.

There are even relatively unknown players in the case. American bank Continental Stock Transfer & Trust Co. has carved out a lucrative niche holding money for many SPAC companies, which are required to hold assets in trust until an acquisition is found.


“Banks have long suffered from fintech, lower interest rates for more than thirty years, globalization and international competitors,” said Mark Yusko, director of Morgan Creek Capital Management. – Banks have many reasons for concern. But this is not due to a temporary slowdown in the pace of SPAC release.


Several executives recently expressed hope for future earnings from SPAC. Deutsche Bank AG CEO Christian Sewing reported last month about “tremendous momentum” in the firm’s SPAC business. He highlighted the prospects for future work with SPAC in the advisory division, saying the business should not be underestimated even if the fees going to his enterprise content management (ECM) franchise diminish over time.

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Europe is also looking to attract more SPACs, with deals slowing in New York. Some of the largest SPAC listings are held in Amsterdam. Frankfurt and Paris have also enjoyed success, and London is considering changing the rules to make it more attractive. Even the Nasdaq Nordic division has created a new structure for such proposals.


“Perhaps the IPO of SPAC companies will never return to the scale that we have already seen, but they will not disappear,” added Nikolai Rusanov of the Wharton School of Business.


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