June 7, 2010

LPL Financial IPO: Market Overview

By Joyce Hanson

From an overall market perspective, LPL Financial's $600 million listing on Friday, June 4, arrives during a period of volatility, with a boomlet of financial services IPOs in the first four months of 2010 followed by a steep fall-off in May.

"This financial offering is a big surprise. The ability to sell stock right now is uncertain, and IPOs are being pulled left and right. More IPOs were pulled in the month of May than in December 2008," said Richard Bove, a high-profile U.S. banking analyst now with Rochdale Securities in Stamford, Connecticut.

To come with a financial offering now is "gutsy," Bove said, adding, "I do hope it's a major success because it will indicate there's money out there for money-instrument companies."

Through April 22, 2010, the financial services sector has seen 10 IPO pricings, according to data from Renaissance Capital. This compares to only 11 financial services pricings in all of 2009 and a mere three pricings during the worst of the recession in 2008.

May's performance aside, if financial services IPOs continue in 2010 as they have over the first four months of the year, they will match the pre-recession levels of pricings in 2007, which saw 29 pricings for the whole year, and 2006, which saw 27. But the current state of the stock market may not cooperate with LPL's plans or, for that matter, investors' desire to put their money into IPOs.

"We're in a correction mode right now. The market has declined 10% to 20% from the S&P 500's closing high of 1,217 on April 23. We are more than 12% below that level," said Sam Stovall, S&P Equity Research chief investment strategist.

To explain the stock market's current volatility, Stovall pointed to the financial reform bill now working its way through Congress, environmental concerns about the oil spill in the Gulf, tensions in Asia centered on North Korea and South Korea, and European debt levels. This combination of factors may force the global economy to experience a double-dip recession, he said.

Turning to the financial sector's performance, Stovall said that of the 10 sectors S&P covers, financials comprised the best-performing category at the market peak, rising more than 160% since the low of March 9, 2009. But, he added, because the group experienced the greatest loss in the 2007-2009 bear market, falling 83% as compared with the S&P 500's decline of 57%, it also had the most to give up due to such a sharp rally.

As for investors, Stovall said, they are now obviously experiencing a lack of conviction as they have started to wonder whether this economic recovery might be falling into a repeat of 2008.

"Just substitute sovereign debt for subprime mortgages," he said. "Investors who are sitting on the sidelines may be less enthusiastic about committing fresh capital to the market in general and to a financial services company in particular, but I would like to make it clear that I have no company-specific opinion."

Year-to-date, financial-sector IPOs have included five real estate investment trusts and a Chinese real estate offering in addition to a $365 million Symetra Financial pricing on January 21, a $127 million Financial Engines pricing on March 15, a $320 million Primerica pricing on March 31, and a $100 million Envestnet offering announced May 21.

From an overall market perspective, LPL Financial's $600 million listing on Friday, June 4, arrives during a period of volatility, with a boomlet of financial services IPOs in the first four months of 2010 followed by a steep fall-off in May.

"This financial offering is a big surprise. The ability to sell stock right now is uncertain, and IPOs are being pulled left and right. More IPOs were pulled in the month of May than in December 2008," said Richard Bove, a high-profile U.S. banking analyst now with Rochdale Securities in Stamford, Connecticut.

To come with a financial offering now is "gutsy," Bove said, adding, "I do hope it's a major success because it will indicate there's money out there for money-instrument companies."

Through April 22, 2010, the financial services sector has seen 10 IPO pricings, according to data from Renaissance Capital. This compares to only 11 financial services pricings in all of 2009 and a mere three pricings during the worst of the recession in 2008.

May's performance aside, if financial services IPOs continue in 2010 as they have over the first four months of the year, they will match the pre-recession levels of pricings in 2007, which saw 29 pricings for the whole year, and 2006, which saw 27. But the current state of the stock market may not cooperate with LPL's plans or, for that matter, investors' desire to put their money into IPOs.

"We're in a correction mode right now. The market has declined 10% to 20% from the S&P 500's closing high of 1,217 on April 23. We are more than 12% below that level," said Sam Stovall, S&P Equity Research chief investment strategist.

To explain the stock market's current volatility, Stovall pointed to the financial reform bill now working its way through Congress, environmental concerns about the oil spill in the Gulf, tensions in Asia centered around North Korea and South Korea, and European debt levels. This combination of factors may force the global economy to experience a double-dip recession, he said.

Turning to the financial sector's performance, Stovall said that of the 10 sectors S&P covers, financials comprised the best-performing category at the market peak, rising more than 160% since the low of March 9, 2009. But, he added, because the group experienced the greatest loss in the 2007-2009 bear market, falling 83% as compared with the S&P 500's decline of 57%, it also had the most to give up due to such a sharp rally.

As for investors, Stovall said, they are now obviously experiencing a lack of conviction as they have started to wonder whether this economic recovery might be falling into a repeat of 2008.

"Just substitute sovereign debt for subprime mortgages," he said. "Investors who are sitting on the sidelines may be less enthusiastic about committing fresh capital to the market in general and to a financial services company in particular, but I would like to make it clear that I have no company-specific opinion."

Year-to-date, financial-sector IPOs have included five real estate investment trusts and a Chinese real estate offering in addition to a $365 million Symetra Financial pricing on January 21, a $127 million Financial Engines pricing on March 15, a $320 million Primerica pricing on March 31, and a $100 million Envestnet offering announced May 21.

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