The Secondary Markets are Humming

From Scott Cutler: If you haven't noticed, there has been a tremendous amount of capital raised in the last few weeks. A total of $60B has been raised in secondary offerings so far this year, with 2/3rd of that since April 1, and 50 percent ($30B) in the last two weeks. The five top deals account for about a third of all secondary capital raised. Wells Fargo--$7.5B, Goldman--$5B, Morgan Stanley--$4B, ArcelorMittal--$2.9B, and US Bancorp--$2.5B.

I don't think anyone is surprised about the need for additional capital by many of these firms, but it is still amazing that they could raise these amounts, and do it so quickly. Many predict that another $30B will be raised in the next several weeks. I had an interview today with Bob Pisani on CNBC to talk about my observations on the capital markets.

How could so much capital have been raised so quickly? I think we have a few things pushing this opportunity. First, in early March, we were looking at and concerned about the threat of financial Armageddon with fund managers putting all their capital in guns, gold, and cash. There is still a tremendous amount of cash sitting on the sidelines waiting to be deployed back in the market.

Second, since we hit the low in early March, the Dow has rallied 26%, with financials towing the market out of its depths. Wells Fargo is up 212% off its March low, Morgan Stanley up 62%, Goldman up 73%, and US Bancorp up 100%. Large institutional investors needed to get back in and in large quantities to protect against further dilution from the share issuances, but also participate in the run up. The ability of the large banks to execute significant offerings into that momentum without a material deterioration in share prices has been equally impressive.
What does this mean about the appetite for risk and the return to a healthy capital market? Clearly, these are positive signs for the overall health of our capital market system, but let's not get ahead of ourselves. The credit and debt markets are still tight, and the appetite for risk is still low. There is a tendency to chase this type of move into the market, but the underlying fundamentals of the business environment remain challenging. I am been pleased with the performance of our recent IPOs -- Mead Johnson, Bridgepoint, Rosetta Stone and Digital Globe from yesterday. All have traded above their offering prices -- and we have another IPO next week. I am also pleased that the NYSE has been the home to every domestic IPO so far this year and we will be four-for-four vs. the competition in technology IPOs. Is it time to party? No -- it is still an exclusive party, the ticket price is high, and you have to come well dressed.