Pulled insurance IPO adds jobs risk on Wall Street
Wall Street just lost some insurance in more ways than one. At the eleventh hour, Liberty Mutual Group yanked the initial public offering of its property and casualty arm. The $1.2 billion deal would have been the biggest U.S. flotation so far this year. It was also being closely watched as a barometer of investor appetite for the swollen backlog of new share sales meant to keep bankers busy. Weaker trading volumes already had many of them nervous about their fates. If IPOs flag too, more jobs could be on the line.
Liberty Mutual fell back on an old chestnut to explain the indefinite postponement: an “unfavorable environment.” Of course, the environment was less unfavorable for Country Style Cooking Restaurant Chain, the Chinese eatery whose new issue a day earlier closed 47 percent above the offer price. The specifics of the insurance industry and Liberty Mutual Agency undoubtedly made this particular deal hard to get away. Policy sales expectations, comparative valuations, a dual share structure and use of the proceeds all conspired to keep prospective buyers at bay.
But pickier investors could spell trouble for already edgy Wall Street underwriters. The summer months have been painful, leading to a cascade of downward earnings revisions ahead of third-quarter results. Choppy markets and a bumpy M&A patch have led to a hiring freeze at Morgan Stanley and some culling at Bank of America Merrill Lynch. It was hoped that equity issuance would provide some insurance across the industry. The pipeline for equity offerings was bulging at more than $300 billion, including IPOs — where the fees are highest for securities firms — of around $75 billion.
The last-minute Liberty Mutual delay isn’t the only bad omen. Plans submitted in May by Toys R Us, owned by a group of private equity firms including Kohlberg Kravis Roberts, to raise $800 million almost certainly will have to wait until next year. French lodging group Accor also on Wednesday canceled a highly anticipated IPO of its stake in a casino and luxury hotel operator. Other new issues are struggling to achieve their desired prices. If more of these expected share sales meet a Liberty Mutual-like fate, many banks will find themselves with little choice but to cut more of their increasingly idle employees loose.