The SAT is not an experience any of us want to return to. Yet, for many people working in finance, it is only the first such test of many: Series 7 to allow you to buy and sell securities, the Series 63 to do it in a specific state, the GMAT to get into business school, and so on. Every year, approximately three million people take the SAT and 250,000 take the GMAT. So however much standardized testing makes you sweat, you are not alone.

The fact seems to be that Americans—or at least American institutions—love standardized testing. And in theory, it is a fitting match. America is the land of democracy, and standardized tests are supposed to allow an individual’s merits to shine through no matter his/her socioeconomic situation. Indeed, according to College Board, the SAT was created to “democratize access to college for all students.”

The SAT is really how the standardized testing fervor began. It started out as an IQ test issued to the U.S. army during World War I, then was adapted by Carl Brigham in 1926 to be a college intelligence test. The test gained prestige in the 1930s when Harvard used it to evaluate scholarship candidates not from the usual Eastern feeder schools. In 1948, its current administrator, the English Testing Service was formed, and the SAT leapt toward college admissions fame.

In its younger days, the SAT wasn’t something that students fretted over as they do now. “When I was growing up in Louisiana, I was very vaguely aware of test prep, and nobody I knew took test prep,” Nicholas Lemann, author of The Big Test: The Secret History of the American Meritocracy, told PBS Frontline. However, as colleges became more competitive and more students began to apply, the SAT played an ever-weightier role—and soon-to-graduate high schoolers took notice. Lemann continues, “In the world I’m in now on the East Coast, test prep is one of the Stations of the Cross for the upper-middle class of America.”

The complaint is, of course, that not everyone can afford test prep for the SAT, and since those who can do so are more likely to do better on the test, it begins to look more like a tool of aristocracy than meritocracy. Additionally, test prep usually involves as much practice test taking as it does instruction on the material. And though these types of practice tests can be found all over the internet for free, this “practice makes perfect” paradigm makes it difficult to know whether a test-taker has actual knowledge or has just practiced test-taking skills.

Such arguments become mitigated where higher level tests are concerned. Those taking the Financial Industry Regulatory Authority’s tests (like the Series 7) already have a banking salary, so they should be able (or at least willing) to spring for the prep they need. But more importantly, higher-level tests simply require higher-level thinking. While the SATs, and to some extent the GREs, test basic knowledge like vocabulary and math, professional tests require specific skills and knowledge sets not easily learned from a prep book—such as how to advise on a stock given certain circumstances. Experience is required.

Though standardized testing may not be a perfect tool of meritocracy, there is a reason all of these tests remain in place—and more continue to be created. With increasingly more school and job applicants coming from increasingly more diverse places, it remains the most efficient tool for evaluating who has the right knowledge set and who does not.

Sources:

• http://www.pbs.org/wgbh/pages/frontline/shows/sats/where/history.html
• http://www.pbs.org/wgbh/pages/frontline/shows/sats/interviews/lemann.html
• http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2009/12/gmat_testing_volume_holds_steady_in_2009.html
• http://press.collegeboard.org/sat/faq

For those with an aversion to America’s favorite pastime, Moneyball is a 2003 book by Michael Lewis (adapted into a 2011 movie), which tells the story of the Oakland Athletics’ 2002 season. With a $39 million budget (versus the Yankees’ $114 million one for the same year), general manager Billy Beane (Brad Pitt) is stuck on one question: How do you compete for talent with a lower budget? Peter Brand (Jonah Hill), a young Yale economics major, provides the solution: Fill the roster with players who get on base, and never mind if they have an ugly girlfriend or less-than-perfect training background.

The older scouts do pay attention to those types of factors—they think having an ugly girlfriend shows a lack in confidence. But in reality, such considerations don’t predict performance on the field—Brand’s data does.

The problem of misjudging up-and-coming talent is hardly limited to baseball. Hiring groups for Wall Street firms often overvalue factors like where candidates went to school or whether they wear the proper type of suit, because they have no set of statistics that effectively predicts how a certain candidate will perform. And with ever-lower hiring quotas and budgets, HR groups are as much between a bat and hard place as Beane was: They have few resources but big expectations to deliver on.

Lewis’ subtitle for his book is The Art of Winning an Unfair Game, and from the talent’s point of view, nowhere is getting onto a roster less of a fair game than in finance. If you didn’t go to that right school or don’t have a well-appointed uncle, you might as well be Chad Bradford, the pitcher with a funny throw that no team wants to take a chance on.

But using Brand’s predictive statistical models, the Oakland Athletics signed Bradford, along with a bunch of other misfits. At first, it didn’t go so well. By the end of the summer, though, the Oakland Athletics were rounding out a 20-game winning streak, setting the American League record that still stands today. The message? Gamble big, have patience with your hand, and come out a winner. Don’t just shake up the hiring model—reinvent it.

Business Dictionary guru Kevin Mulligan suggests that recruiters “identify the factors that matter most to your organization, and pursue those candidates no matter the industry norm.” The hardest part for HR groups in finance right now is successfully determining which candidates have those factors that matter. They need a way to aggregate the right data on applicants, then to be able to model it to see how a certain candidate—or certain team of candidates—will perform.

At the end of the film version, the owner of the Boston Red Sox invites Beane to Fenway Park and slides a $12.5 million figure across the table to him, calling anyone who wouldn’t want to employ Beane’s new methods a “dinosaur.” Banks cannot afford to be ambling brontosauruses—they need to find their “Brand” of statistical modeling to improve talent-sourcing now, rather than later.

Sources:

• http://www.businessdictionary.com/article/659/using-moneyball-tactics-to-run-your-business/
• http://blogs.wsj.com/dailyfix/2012/11/07/a-sabermetric-approach-to-the-election/

It is indeed heartbreaking to read a quote like the following from a London banking executive: “When I let go tons of people in cash equities this year, I knew most would be finished in this business. It is pretty dead. Some will just have to find something completely different to do” (CNBC’s source wished to stay anonymous). No one likes to go into a business thinking (s)he is replacing someone with a wife, kids, and bills of his/her own to pay—but most of these cases are not ones of direct replacement anyway. Redundancies are being eliminated, and companies are expanding more agile sectors where the economic outlook is less dire.

Some might ask: But won’t the same thing happen to me in 5, 10 years, if this “shrinking” is “for good”? As uncertainty seems to be the new norm, no one can unequivocally answer “yes” or “no.” But those who get their Wall Street initiation in the midst of this constantly collapsing environment will—or at least should be—only the best of the best. They will have had their skill tested from the beginning, and they will be expected to make good on that skill faster than ever before. They will be nimbler than their predecessors and ever-conscious of the need to be ahead of the game, not just on top of it.

No, the economy (at least in the banking sector) is not yet looking up and may never be at the same level of glory again. CNBC’s calculation that fires still “outpace new hires by roughly 2-to-1” is nothing to make light of. However, finance has never been anything but Darwin’s “survival of the fittest.” It’s time to adapt—and those just entering the arena will be the best trained to do so.

Source:

• http://www.cnbc.com/id/49851885

The flipside of those mathematics is that such candidates probably don’t spend more than a minute looking at each job’s qualifications, let alone at the individual company and its culture. The efficiency of job boards from the employer’s point of view has plummeted. Sal Iannuzzi, CEO and Chairman of the Board of Monster Worldwide, sums up the problem in numbers, writing in a CNN article that companies today “are receiving on the order of 100 – 200 applicants per job or about 3 million applicants for a 100,000 employee company.” The inundation is several times multiplied for each job in the banking world—and the company’s burden is augmented by the reality that most of these candidates just want a job anywhere, not necessarily with them

Let’s take a look back. When online job boards started springing up in the Y2K era, employers needed the extra apps. They were expanding, and HR groups were more than ready to toss out their letter openers in favor of opening online attachments. Monster was the first job-hunt mecca to gain widespread public notice thanks to its 1999 Super Bowl commercial “When I Grow Up” (a Super Bowl top 10 ad). An amalgam of cherubin faces proclaimed the likes of, “When I grow up, I want to file all day” and “I want to be replaced on a whim.” Their sarcasm would hit a cord with the 99% today. At the time, it moved millions of viewers to click on down to Monster.com and re-pursue the job of their dreams.

Fast-forward a decade, and over 40,000 job boards are in operation. Nearly every banking company has its own online job portal. Applicants can log on and apply to multiple positions without worrying about the distinctions among them. Postings on external sites are de rigueur for both employee and employer.

As part of its Wall Street Admissions Test (WSAT) demo process, Street of Walls posted as “Bank XYZ” on several of these public job boards. “Bank XYZ” does not exist, never has existed, and probably never will exist—yet that didn’t stop dozens of candidates from applying. This example shows just how hungry today’s financial job-seekers are—and the inability of the current economy and hiring systems to satiate them.

On the business side of things, HR groups are pared down to the bone and have no time to keep up with online application traffic—not even close—as Iannuzzi’s numbers suggest. Additionally, some posts aren’t even made with an eye to actual hiring but might be used for boosting numbers or comparing against a new international hire (United States visa applications require data collected on local competitors for the same job). Companies’ frustration with the job board system is illustrated in the fact that companies are beginning to post less.

The Wall Street Journal reported that, according to business consulting firm Corporate Executive Board Co., in 2011 24% of companies planned to “decrease their usage of third-party employment websites and job boards.” Instead, 80% of the companies surveyed were going to “increase their use of job-board alternative methods … such as employee referrals and other websites like Facebook Inc. or LinkedIn.”

So while no, the job board is not dead, many companies are looking to alternatives. Iannuzzi himself admits, “Without further technological innovation in the human capital management space, this growing global issue will only get more complicated and acute.” He goes on to outline a new dating site approach: “Matching theory is our new anthem and semantic search is the new technology that will finally find the needle in the haystack.” Monster’s plan to get personal fits in with social media tactics already employed by many companies in their hiring process.

Ironically, in the midst of all this, recruiters are reasserting their pre-job-board importance in the hiring process as they look to internal referrals and candidates reached via other, more private networks. It would be false to call this a full circle: The Internet is not going anywhere and job boards are not yet wheezing their last breaths. But they will have to prove themselves capable of reworking the model to keep companies’ demand.

Sources:

• http://www.cnbc.com/id/47858753/Monster_CEO_Harvesting_Your_Talent_Pool
• http://online.wsj.com/article/SB10001424052748704307404576080492613858846.html
• http://www.recruiter.com/i/4-ways-to-improve-job-boards/
• http://www.cenedella.com/job-search/history-of-job-search-when-i-grow-up-i-want-to-have-a-brown-nose/
• http://www.paulasantonocito.com/pdf/HRWire_The_Death_of_Job_Boards.pdf

Wall Street is a numbers game, and so is its recruitment process. Investment banks receive tens of thousands of resumes a year, plus a few thousand internal referrals, and have a single-digit committee meant to sift through it all—numbers that add up to a lot of applications being dumped in the trash. But with the economy so tough, finding the right candidates is more vital than ever. Now is the time to restructure the finance hiring process—to allow companies to consider more candidates and evaluate them in a quicker, more meaningful way.

Think about it like this: If job markets were ranked like universities for difficulty of admission, Wall Street would be a super-Ivy. For investment banking internships alone, Bank of America receives 30,000 applications a year and accepts 100, or 0.3%. For the class of 2014, Harvard Business School went through 9,000 applications, of which it accepted 12%. That means it is 40 times more difficult to get an investment banking internship at Bank of America than to get an MBA from Harvard.

The comparison is more than superficial. Top financial firms often do not have the manpower to look beyond candidates from top-tier schools. Based off industry research from Lauren Riviera, an assistant professor at Northwestern, Business Insider claimed, “Elite law firms, investment banks, and consultancy firms are only looking for recruits from the ‘top 5’: Harvard, Yale, Princeton, Stanford, and Wharton.”

Yet plenty of Wall Street alums admit that top employees do not necessarily hold the most prestigious degrees. “I’ve found the greatest success in employees who are from no-name schools,” Eric Chen, now an associate professor of business administration, told The Grindstone. “These kids did whatever it took to be successful. There was no job they wouldn’t do. You would ask them to jump and they would ask how high.” The current recruiting process leaves both employers and hopeful-employees-to-be in a pickle: The best performers are not always top-tier school graduates, but candidates need to graduate from a top-tier school to be allowed the chance to perform.

A component of this problem is that Wall Street has no universal system to evaluate and rank candidates’ skill sets—its only basis for quick judgment is the name of the school attended. But, as Chen’s quote suggests, an impressive diploma does not necessarily equip candidates with the technical proficiency or on-the-ground resourcefulness that investment bankers really need. As a result, company recruiters end up throwing away hours of their time—on top of those thousands of non-top-tier applications—interviewing hopefuls who really know nothing about the job. And they can only hope to weed out those lacking proficiency during the interview process—and not once the candidate is three months into a new job.

The solution? In today’s economy, every company is making cuts, so increasing the size of HR groups isn’t a likely—or efficient—answer. So let’s return to a proven method in a different industry: the university model. How do college admissions offices handle the applicant deluge? They use standardized test scores to narrow the field of qualified candidates. Perhaps the banking world could employ the same tactic.

Allen Grove, About.com’s college admissions guru, underscores the importance of SAT/ACT scores: “As much as admissions officers say they take an open-minded and holistic approach to their decisions, SAT scores can make or break an application. And let’s face it—it’s easier to compare numerical data than it is to decide whether a semester in France should be ranked higher than a state soccer championship.” When it’s a numbers game—as both the job and college admissions processes inevitably are—standardized tests provide the easiest way to rank candidates and assess how they might continue to perform.

• http://www.hbs.edu/about/statistics/mba.html
• http://thegrindstone.com/education/
• http://articles.businessinsider.com/
• http://collegeapps.about.com/od/sat/f/goodsatscore.htm

Sandler O’Neill’s Weekly M&A Trends:

Equity markets declined for the second week in a row

• The S&P 500 declined by 1.3% in the week and the Russell 2000 growth index declined by 2.0% in the week. In 3Q12, the S&P 500 rose by 5.8% while the Russell 2000 index improved by 4.7%.
• Average daily U.S. equity trading volumes declined by 5.2% from the prior week. In 3Q12, volumes averaged 13% below the 2Q12 weekly average and 32% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
• Equity mutual funds experienced net outflows of $5.2 billion in the week according to ICI data (on a one week lag). Equity mutual funds experienced $40.8 billion of net outflows in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11. 3Q12 experienced the highest level of net outflows from equity mutual funds since the $64.1 billion of net outflows seen in 4Q11.
• Volatility, measured by the average CBOE VIX, increased by 8.9% to 15.4, and the DB currency VIX declined by 0.7% to 8.04.

Both announced and completed M&A improved but remain light while equity and debt underwriting were solid on the week

• Equity underwriting volumes of $19.4 billion improved by 21% from the prior week. In 3Q12, equity underwriting volumes averaged 17% above both the 2Q12 weekly average level and the 3Q11 average weekly level. The week was highlighted by Santander Mexico Financial Group’s $2.9 billion IPO, which priced on September 26 and has returned over 13% through Monday. According to Nasdaq, there are eight IPO’s set to price this week, the largest of which is Berry Plastics Group Inc.’s $608.8 million IPO, which is set to price on October 4.
• Corporate debt underwriting volumes of $61 billion declined by 37% from last week’s relatively elevated level. In 3Q12, corporate debt underwriting volumes averaged 36% above the 2Q12 weekly average level and 90% above the 3Q11 weekly average level.
• Announced M&A volumes of $24.3 billion improved by 16% from the prior week. In 3Q12, announced M&A volumes averaged 11% below the 2Q12 weekly average level and 14% below the 3Q11 average weekly level.
• Completed M&A volumes of $24.7 billion improved by 32% from the prior week. In 3Q12, completed M&A volumes averaged 20% below the 2Q12 weekly average level and 4% below the 3Q11 average weekly level.

Credit spreads widened on lighter volume

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 25 bps in the week to 548 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread tightened (improved) by 62 bps in 3Q12.
• The CDX investment grade index (IG18) widened (deteriorated) by 3 bps in the week to 90 bps. After widening (deteriorating) by 26 bps in 2Q12, the index tightened (improved) by 22 bps in 3Q12.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), rose (deteriorated) by 12% in the week, but has declined (improved) in fifteen of the prior seventeen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index declined (improved) 48% in 3Q12.
• Daily average bond trading volumes declined by 3% from the prior week. In the week, average investment grade bond volumes declined by 1%, average high yield bond volumes declined by 8%, and average convertible bond volumes increased by 10%. 3Q12 total bond volumes averaged 5% below the 2Q12 weekly average and were flat with the 3Q11 weekly average.
• The AAA ABX-HE declined by 4% in the week and the CMBX declined by 0.4% in the week.
• The trade-weighted U.S. Dollar Index (DXY) rose by 0.8% in the week and the Commodity Research Board Index (CRB) rose by 0.1%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, was flat in the week at 27 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.

Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.

Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.

Sandler O’Neill’s Weekly M&A Trends:

Equity markets pulled back modestly on lighter trading volume

• The S&P 500 declined by 0.4% in the week and the Russell 2000 growth index declined by 0.8% in the week. In 3Q12, the S&P 500 has risen by 7.2% while the Russell 2000 index has improved by 6.8%.
• Average daily U.S. equity trading volumes declined by 5.1% from the prior week. Thus far in 3Q12, volumes are averaging 13% below the 2Q12 weekly average and 32% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
• Equity mutual funds experienced net outflows of $3.3 billion in the week according to ICI data (on a one week lag). Equity mutual funds have experienced $35.5 billion of net outflows thus far in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
• Volatility, measured by the average CBOE VIX, declined by 8.2% to 14.1, and the DB currency VIX was essentially flat at 8.1.

Debt underwriting was again a highlight in the week while completed M&A volumes also improved

• Equity underwriting volumes of $15 billion declined by 61% from the prior week, though last week’s volumes were boosted by the Treasury’s $20 billion offering of AIG stock. Thus far in 3Q12, equity underwriting volumes are averaging 13% above both the 2Q12 weekly average level and the 3Q11 average weekly level. Positively, five IPO’s priced in the week with Trulia, Inc.’s $102 million offering highlighting the week, returning over 40% on its first day of trading.
• Corporate debt underwriting volumes of $90.2 billion declined 20% from last week’s elevated level. Thus far in 3Q12, corporate debt underwriting volumes are averaging 35% above the 2Q12 weekly average level and 89% above the 3Q11 weekly average level.
• Announced M&A volumes of $19.2 billion declined by 49% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 10% below the 2Q12 weekly average level and 13% below the 3Q11 average weekly level.
• Completed M&A volumes of $17.9 billion improved by 68% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 20% below the 2Q12 weekly average level and 5% below the 3Q11 average weekly level.

Credit spreads widened as volume slowed modestly

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 13 bps in the week to 523 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 88 bps thus far in 3Q12.
• The CDX investment grade index (IG18) widened (deteriorated) by 4 bps in the week to 87 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 25 bps in 3Q12 QTD.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 23% in the week, and has declined (improved) in fifteen of the prior sixteen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 53% thus far in 3Q12.
• Daily average bond trading volumes declined by 4% from the prior week. In the week, average investment grade bond volumes declined by 3%, average high yield bond volumes declined by 3%, and average convertible bond volumes declined by 20%. 3Q12 total bond volumes are averaging 7% below the 2Q12 weekly average and 1% below the 3Q11 weekly average.
• The AAA ABX-HE rose by 0.1% in the week and the CMBX declined by 0.5% in the week.
• The trade-weighted U.S. Dollar Index (DXY) rose by 0.6% in the week and the Commodity Research Board Index (CRB) declined by 3.7%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, tightened (improved) by 2 bps in the week to 27 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.

Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.

Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.

Sandler O’Neill’s Weekly M&A Trends:

The S&P 500 had its best week since early June

• The S&P 500 rose by 2.2% in the week and the Russell 2000 growth index rose by 3.7% in the week. In 3Q12, the S&P 500 has risen by 5.6% while the Russell 2000 index has improved by 5.4%.
• Average daily U.S. equity trading volumes rose by 34% from the prior week. Thus far in 3Q12, volumes are averaging 15% below the 2Q12 weekly average and 34% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
• Equity mutual funds experienced net outflows of $4.4 billion in the week according to ICI data (on a one week lag). Net outflows from equity mutual funds totaled $22.9 billion in August, the highest monthly amount experienced since the $32.8 billion of net outflows experienced in December 2011. Equity mutual funds have experienced $29 billion of net outflows thus far in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
• Volatility, measured by the average CBOE VIX, declined by 3.6% to 16.4, and the DB currency VIX declined by 10.9% to 8.2.

Debt underwriting had its best week since May 2011 and equity underwriting also improved significantly while M&A activity was quite light

• Equity underwriting volumes of $17.2 billion more than tripled from the prior week. Thus far in 3Q12, equity underwriting volumes are averaging 12% below both the 2Q12 weekly average level and the 3Q11 average weekly level. Notable deals in the week included ING’s $3 billion offering of its shares in Capital One and A.I.G.’s $2 billion offering of its shares in the A.I.A. Group.
• Corporate debt underwriting volumes of $98 billion nearly tripled from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 19% above the 2Q12 weekly average level and 67% above the 3Q11 weekly average level.
• Announced M&A volumes of $16.6 billion declined by 60% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 9% below the 2Q12 weekly average level and 12% below the 3Q11 average weekly level.
• Completed M&A volumes of $11.9 billion improved by 13% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 15% below the 2Q12 weekly average level and 1% below the 3Q11 average weekly level.

Credit spreads tightened and volume picked up as the summer doldrums came to an end

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) tightened (improved) by 26 bps in the week to 555 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 56 bps thus far in 3Q12.
• The CDX investment grade index (IG18) tightened (improved) by 9 bps in the week to 93 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 19 bps in 3Q12 QTD.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 18.3% in the week, and has declined (improved) in thirteen of the prior fourteen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 33% thus far in 3Q12.
• Daily average bond trading volumes rose by 57% from the prior week. In the week, average investment grade bond volumes rose by 41%, average high yield bond volumes rose by 106%, and average convertible bond volumes rose by 56%. 3Q12 total bond volumes are averaging 12% below the 2Q12 weekly average and 7% below the 3Q11 weekly average.
• The AAA ABX-HE was rose by 2.8% in the week and the CMBX rose by 0.4% in the week.
• The trade-weighted U.S. Dollar Index (DXY) declined by 1.2% in the week and the Commodity Research Board Index (CRB) rose by 0.7%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, tightened (improved) by 4 bps in the week to 31 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.

Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.

Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.

Sandler O’Neill’s Weekly M&A Trends:

The S&P 500 declined for the second consecutive week but ended positive for the month

• The S&P 500 declined by 0.3% in the week and the Russell 2000 growth index rose by 0.5% in the week. In 3Q12, the S&P 500 has risen by 3.3% while the Russell 2000 index has improved by 1.7%.
• Average daily U.S. equity trading volumes declined by 10.3% from the prior week. Thus far in 3Q12, volumes are averaging 16% below the 2Q12 weekly average and 34% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
• Equity mutual funds experienced net outflows of $5.9 billion in the week according to ICI data (on a one week lag). Net outflows from equity mutual funds totaled $18.4 billion in August, the highest monthly amount experienced since the $32.8 billion of net outflows experienced in December 2011. Equity mutual funds have experienced $24.6 billion of net outflows thus far in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
• Volatility, measured by the average CBOE VIX, rose by 13.2% to 17.0, and the DB currency VIX rose by 5.5% to 9.2.

Investment banking volumes were soft across the board as activity slowed as expected heading into the holiday weekend

• Equity underwriting volumes of $4.5 billion decreased by 45% from the prior week. Thus far in 3Q12, equity underwriting volumes are averaging 18% below both the 2Q12 weekly average level and the 3Q11 average weekly level.
• Corporate debt underwriting volumes of $30.8 billion declined by 15% from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 9% above the 2Q12 weekly average level and 52% above the 3Q11 weekly average level.
• Announced M&A volumes of $39.8 billion declined by 12% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 4% below the 2Q12 weekly average level and 7% below the 3Q11 average weekly level.
• Completed M&A volumes of $8.9 billion declined by 57% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 9% below the 2Q12 weekly average level and 6% above the 3Q11 average weekly level.

Credit markets deteriorated on lighter volume

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 17 bps in the week to 580 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 30 bps thus far in 3Q12.
• The CDX investment grade index (IG18) widened (deteriorated) by 1 bp in the week to 102 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 10 bps in 3Q12 QTD.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 1.5% in the week, and has declined (improved) in twelve of the prior thirteen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 18% thus far in 3Q12.
• Daily average bond trading volumes declined by 18% from the prior week. In the week, average investment grade bond volumes declined by 14%, average high yield bond volumes declined by 26%, and average convertible bond volumes declined by 32%. 3Q12 total bond volumes are averaging 14% below the 2Q12 weekly average and 9% below the 3Q11 weekly average.
• The AAA ABX-HE was flat in the week and the CMBX rose by 0.3% in the week.
• The trade-weighted U.S. Dollar Index (DXY) declined by 0.5% in the week and the Commodity Research Board Index (CRB) rose by 1.2%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, widened (deteriorated) by 1 bp in the week to 35 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.

Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.

Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.

Sandler O’Neill’s Weekly M&A Trends:

The S&P 500 declined after six consecutive weeks of gains

• The S&P 500 declined by 0.5% in the week and the Russell 2000 growth index declined by 1.3% in the week. In 3Q12, the S&P 500 has risen by 3.6% while the Russell 2000 index has improved by 1.2%.
• Average daily U.S. equity trading volumes improved by 1.2% from the prior week. Thus far in 3Q12, volumes are averaging 14% below the 2Q12 weekly average and 33% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
• Equity mutual funds experienced net outflows of $3.2 billion in the week according to ICI data (on a one week lag). In total, equity mutual funds have experienced $19.5 billion of net outflows in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
• Volatility, measured by the average CBOE VIX, rose by 6.2% to 15.1, and the DB currency VIX decreased by 3.2% to 8.7.

Investment banking volumes were mediocre on the week amidst the summer doldrums

• Equity underwriting volumes of $10.7 billion increased by over 70% from the prior week. However, over 80% of the total volume in the week was the result of a $9 billion private placement by Bank of Communications in China in order to help meet the country’s capital requirements. Excluding this deal, equity underwriting volumes of $1.8 billion declined 70% from the prior week. Thus far in 3Q12, equity underwriting volumes are averaging 10% below the 2Q12 weekly average level and 9% below the 3Q11 average level.
• Corporate debt underwriting volumes of $33.5 billion declined by 44% from the prior week. Thus far in 3Q12, corporate debt underwriting volumes are averaging 13% above the 2Q12 weekly average level and 58% above the 3Q11 weekly average level.
• Announced M&A volumes of $43 billion improved by 15% from the prior week and have improved in each of the prior three weeks. Thus far in 3Q12, announced M&A volumes are averaging 5% below the 2Q12 weekly average level and 9% below the 3Q11 average weekly level. In addition, a flurry of deals were announced this morning, including: M&T Bank’s acquisition of Hudson City Bancorp for $3.7 billion, Hertz’s acquisition of Dollar Thrifty for $2.3 billion, IBM’s acquisition of Kenexa for $1.3 billion, Thomas Bravo’s agreement take Deltek private for $1.1 billion and First Reserve Corporation and SK Capital Partners’ agreement to take TPC Group private for $850 million.
• Completed M&A volumes of $14.3 billion declined by over 60% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 3% below the 2Q12 weekly average level and 12% above the 3Q11 average weekly level.

Credit market trends were mixed on light volume

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 3 bps in the week to 563 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 47 bps thus far in 3Q12.
• The CDX investment grade index (IG18) widened (deteriorated) by 1 bp in the week to 101 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 11 bps in 3Q12 QTD.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 2.2% in the week, and has declined (improved) in eleven of the prior twelve weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 17% thus far in 3Q12.
• Daily average bond trading volumes declined by 11% from the prior week. In the week, average investment grade bond volumes declined by 5%, average high yield bond volumes declined by 23%, and average convertible bond volumes improved by 17%. 3Q12 total bond volumes are averaging 11% below the 2Q12 weekly average and 6% below the 3Q11 weekly average.
• The AAA ABX-HE declined by 0.4% and the CMBX declined by 0.2% in the week.
• The trade-weighted U.S. Dollar Index (DXY) declined by 1.2% in the week and the Commodity Research Board Index (CRB) rose by 0.8%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, tightened (improved) by 3 bps in the week to 33 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.

Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.

Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.