Q1 2023 for the Record Books

David Poulton & Keith Min

Product Specialists, Data & Analytics Solutions

April 20, 2023

The Data and Analytics division of EquiLend has observed many revenue-impacting corporate events in recent years; Naspers in 2021 and 3M last year, to name a few. Both of which resulted in huge rate spikes over record date as lenders and borrowers actively participated. What happens when a meme stock with a massive retail following decides to merge its common stock with freshly issued preferred shares…? A huge arbitrage opportunity, a class action lawsuit, and a securities lending top earner that single handedly drove average fees and revenue to new heights. Join the Data and Analytics team for a look back on AMC Entertainment and other drivers for the $2.8 billion in revenue generated for lenders in Q1 2023, the most in a quarter since Q2 2018.

All Eyes on Meme

When AMC Entertainment announced plans to equally merge the common stock, AMC, with their preferred shares, APE, a huge arbitrage opportunity arose due to the large spread between the stock price for AMC and APE, which was exacerbated by retail support for the common stock. Fees for borrowing AMC increased to unusually high levels as short positions became more difficult to source. Revenue for AMC common stock came in at $181 million for Q1 2023, which was more than the next three top earners for the quarter combined. In early April, a settlement was reached ending any uncertainty of a merger, however as with similar corporate events in the past, revenue will continue to follow until the effective date of the merger.

Regionally, equities in North America had a stellar quarter. Revenue was up 40% as the cost of borrowing rose by 34% year-over-year. In EMEA, there was a 34% increase in revenue driven by a 32% increase in fees offsetting a 1% drop in loan values. Whilst APAC equities were the sole dip in the asset class, with Q1 2023 revenue down 1% year-on-year, there is plenty to look forward to in the region as the regulatory pressures eventually relax in South Korea and the Australia and Taiwan markets continue to shine as COVID restrictions finally ease.

Raising Rates: The Good

Throughout the first quarter of 2023 global banks have continued to raise interest rates to curb inflation. Lending revenue in the Corporate Debt asset class increased by 66% year-on-year, in response to the rise in yields. Investment grade debt (ratings AAA to BBB-) fared well with a 71% increase in revenue while high yield debt observed a 63% increase. As in 2022, fees were the primary driver increasing from 27 bps in Q1 2022 to 45 bps in the last quarter. According to CME Group’s FedWatch Tool, rate cuts in the US are plausible as early as Q3 of this year which should have an impact on corporate debt revenue in the coming quarters. Read more on this with a detailed analysis of Corporate Debt performance in the quarter later in this edition.

Raising Rates: The Bad

Loan balances for global government debt dropped dramatically by 13% in Q1 2023 as the top 5 markets each experienced near double-digit declines. While a 2-basis point increase in fees resulted in a 9% year-over-year increase in revenue, the first quarter of 2023 saw a decrease in revenue of 5% when compared to Q4 2022. The tables on the next page show the top 5 markets by revenue where US Treasurys earned more than UK, Canadian, German and French government debt combined. In each market the relative drops in balances are offset with an increase in fees resulting in year-on-year revenues in both positive and negative territory.

Raising Rates: The Ugly

The regional banking industry shook as Silicon Valley Bank collapsed in mid-March. The increasing interest rate environment heavily depreciated the US Treasurys held by the bank and plans to raise capital caused clients to withdraw their deposits. Since then, several other regional banks have been under the microscope and the impact on the securities lending market was immediate.

Many regional banks instantly became hard-to-borrow, resulting in a 13% revenue increase for the banking sector over Q1 of the prior year. The average fees increased by 2.5% and on loan balances dramatically increased by 10%, mainly driven by the last few weeks of the quarter. Additional coverage is available in this edition of The Purple, “Analyzing the Impact of the 2023 Banking Crisis on Securities Lending.”

The team at EquiLend Data & Analytics are keen to explore new and exciting insights into the aggregated data that we collect, sanitize and share either directly with our clients, or the wider marketplace. In case you are not already following or subscribed our various social media and publicly available outlets we have listed below some useful links:

Click here to access our new Monthly Market Snapshots, which complement our more detailed quarterly infographics presented in The Purple. DataLend Daily Market Updates are available on our Research page here or via our Twitter feed here. Don’t miss our series of “Securities Lending Perspectives” into the AMC/APE activities during Q1, along with other market intelligence on our Research page. Please follow us on LinkedIn and bookmark our press releases for regular updates.

About DataLend

DataLend, the market data service within EquiLend’s Data & Analytics Solutions group, tracks daily market movements across more than 62,000 unique securities in the $2.5 trillion securities finance market. www.datalend.com

About EquiLend

EquiLend is a global financial technology firm offering Trading, Post-Trade, Data & Analytics, RegTech and Platform Solutions for the securities finance industry. EquiLend has offices in North America, EMEA and Asia-Pacific and is regulated in jurisdictions around the globe. www.equilend.com