People at the big securities firms around Wall Street are getting pretty nervous these days. Underwritings, the true engine of profits, simply haven't come back since the April crash in the dot-coms. And the news is only going to get worse because when June ends, underwritings end. People go to the beach. I thought this wasn't going to happen. I thought the robust action in the optical IPOs might ignite the backlog and let deals come through.
But it's not happening. And if it does, it will only be from issuers with clout: I am long
, for example, because Tyco has the clout to demand that a deal get done. It will, I believe. (
was able to do the same in stuffing the
deal in when no one else could.)
The venture capitalists, however, apparently have lost that clout. And the trading desks of the U.S. have come to the grudging recognition that the public has taken such a beating in the underwriting markets that you can't count on individual investors to buy the deals anymore. Almost half of the 10 net e-tail deals that squeezed out before the collapse are already in danger of violating the
easy capital rules.
The brokerages will probably all miss their earnings estimates now because the deal market didn't come back. This part of the cycle, during which they get beaten up because they have tremendous infrastructures set up to sell stock with no ability to price, is the true downer of the industry. We will see a bottom in these stocks after the numbers are all slashed, as we saw in 1994 and 1998.
But we're keeping our powder dry until we see the layoffs and the downsizings that we all know are about to occur as Wall Street realizes that the great underwriting boom of the last 18 months is totally over. In keeping with my bent on trying to find a positive where the negatives predominate, I can tell you that of the 300 deals that are wilting in the pipeline -- most of which will have to be cancelled soon because companies can't walk around in registration for ever, as they aren't allowed to say anything about their businesses publicly during that time, which is killing whatever buzz might have been left -- most will need some kind of bank financing, either from the creditor banks or the likes of
That means good news for a bank without a brokerage arm. But good luck trying to find a major one that doesn't have one!
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long General Electric and Tyco. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at