LONDON/NEW YORK: Investment bankers are bracing for another tough year ahead after losing out on lucrative fees from arranging initial public offerings (IPOs) and other share sales, as questions around monetary policy and a looming recession dampen hopes for a near-term rebound.

Banks have executed $517 billion worth of equity capital markets (ECM) transactions to date in 2022, the lowest level since the early 2000s and a 66% drop from last year’s deal bonanza, according to Dealogic data.

“ECM activity tends to be higher in periods of distress or where growth is strong, and today we’re in no man’s land,” said Gareth McCartney, who co-leads UBS’s global franchise.

The IPO market all but ground to a halt this year, as Russia’s invasion of Ukraine and interest rate hikes from central banks weighed on the broader economy.

Barring exceptions such as Porsche’s blockbuster 9.4 billion euro ($9.97 billion) offering in September, most major flotations, including those of Swiss dermatology specialist Galderma and SoftBank Group Corp-owned chip designer Arm, were deferred until market conditions improve.

“We’re entering a new recessionary world we haven’t seen in a while,” said Valery Barrier, co-head of EMEA ECM at Citi. “We’re going to see more primary capital being raised, more convertible bonds to cheapen the cost of financing and non-core shareholding being sold.” As the cost of debt continues to rise, bankers expect companies to turn to equity solutions as a way to manage their balance sheets and protect their corporate ratings. Recent examples of such deals include French videogame developer Ubisoft’s 470 million euro convertible bond and Credit Suisse’s 4 billion Swiss franc cash call.

Banks are hoping that a recent pickup in block trades and capital raising will spill over into the new year and pave the way for future IPOs.

“Volatility has come down, so markets have the ingredients for issuance to pick up,” said Alex Watkins, co-head of ECM at JPMorgan for EMEA.

Global equities slid last week following a string of hawkish announcements from major central banks. But some investors are betting that interest rates will start to plateau sooner than policymakers have indicated, as inflation shows signs of peaking.