That was the year that was

“

Well, that was great, wasn’t it? Yes, there was the geopolitics – trade and protectionism, Brexit, Italy, Russia, China, France (a late addition that one and somewhat surprisingly, perhaps, as it turned out that an investment banker would not seek to govern as a man of the people) – and every region and every time zone had its own events driving markets and sentiment.

And always in the frame, tiny-handed Trump and his Twitter-finger.

But no matter. The US was in growth mode. Employment looked rosy. The dollar repatriation amnesty was adding another cylinder to the engine. Equity markets were robust, companies and lenders were flush with liquidity.

Boardrooms – the savvy ones – knew that with great share price strength came great responsibility, to show growth organically or through acquisitions. If not, your equity was liable to be rerated before too long.

Sponsors, finding themselves head-to-head with the strategic bid more often than not, had to catch up. Activism, continuing to jump the Atlantic to rise in Europe as never before, added another frisson.

And so it played out in the data: global announced M&A at record levels. Acquisition financing as an asset class was surely the biggest driver of corporate finance activity.

And how we banks loved it all – but mustn’t say so! Our executives probed by analysts at every earnings call for signs of complacency. Any regulatory easing was surely a dream come true? No, it’s very early days, it’s not clear what the impact will be, we maintain a cautious outlook, rivals might be pushing the boundaries when it comes to pricing and leverage, but not us. No, not us.

But what’s this? A softening of equity prices? A return to a yield curve? Pah, scoff the capital markets bankers. Clients must accelerate financings to lock in rates. Bring it on. After all, everything up! Assets, profits, returns: returns on equity of above 15%, imagine that! And what a denominator!

Er yes, on that – and I’m sorry I know it’s dull and excuse me for mentioning it, ordinarily I wouldn’t – but capital, as measured by common equity tier-1 ratios, actually down a tad year-on-year at lots of shops. But we know there’s far too much of it sloshing about now anyway. The pendulum too far the other way. Let us give it back or use it, something other than holding it.

After all, we banks are not the risk now – no fear! It’s the funds that have all the fun. Oh yes, there’s danger there – the probability of random outcomes cannot be discounted, you see. Late cycle? Yes, I should say so, perhaps a year to run, but no matter. Flight to quality. Certainty of execution – no, not that sort, don’t be morbid.

We are a strong bear market house.”