The Value of Capital Markets to the UK Economy
London 21st May 2020
The latest report from New Financial shows how central capital markets are to the day-to-day functioning of the UK economy with more than 90% of large UK companies using them.
The report underlines how capital markets have a vital role to play in supporting the UK economy through the Covid-crisis – and in fuelling an economic recovery in the coming years.
For most people around the country, what goes on in the City of London and the financial markets seems remote, complex, and disconnected from their everyday lives and the day-to-day economy. The independently researched report by New Financial was supported by BNP Paribas, and set out to analyse how relevant and important capital markets are to UK companies, and how valuable capital markets are to the wider UK economy. The report found:
- Capital markets are hugely relevant to UK plc and UK Ltd
More than 90% of large UK companies (those with revenues of more than £200m a year) use the capital markets to raise money, invest in or restructure their business, or to manage risk. That translates into around 1,000 large UK companies using the capital markets and a further 14,000 smaller companies.
- The economic impact of the capital markets
The UK companies that use the capital markets have a big economic impact: they employ around eight million people in the UK (nearly a quarter of the total UK workforce). Large companies that use the capital markets account for nearly six million of the jobs in the UK (and they employ a further seven million people around the world.
- Capital markets add vital capacity to corporate funding
UK companies raised around £750bn in the bond, equity and leveraged loan markets in the five-year period we analysed in the report (2014 to 2018) or around £150bn a year. That’s a big boost to annual flows of gross bank lending of around £300bn a year in the UK.
- Capital markets & the Covid crisis
Much of the coverage of the financial services industry over the past few months has been around bank lending. We found that in response to the Covid crisis, from the middle of March to the end of April, nearly 150 UK companies raised around £30bn between them in the corporate bond and equity markets.
– Three quarters of large UK companies were involved in the M&A markets as buyers or sellers.
– At least 80% of large UK companies actively use derivatives to manage risk, with FX and interest rate derivatives the most frequently used
– Over 40% of large privately-held UK companies (ie. companies not listed on the stock market) are backed by private equity
– Nearly half of all large UK companies are listed on the stock market and around 45% of listed companies used the stock market to raise money in the five year period we analysed
William Wright, the founder and managing director of New Financial, said:
‘This report provides the most comprehensive picture yet of the value of capital markets to the UK economy and how relevant they are to UK companies. It underlines that while bank lending plays an important role in supporting the economy, capital markets add much-needed diversity, speed, capacity and flexibility to funding for companies.
We started this project long before any of us had heard of coronavirus. In light of the Covid crisis, the report shows how capital markets can help companies access billions of pounds quickly. Given how important capital markets are today to UK companies and the UK economy, they will have to play a vital role in helping support the economy through this crisis and in fuelling an economic recovery.’
Anne Marie Verstraeten, UK country head at BNP Paribas Group, said:
‘Having an effective, purpose driven financial services industry is core to the functioning of the UK real economy. This report underscores just how vital access to capital markets is when it comes to supporting our UK companies, providing them with access to liquidity, investors, and to markets across the world.
Most recently, the COVID-19 health crisis has hit the economy hard and the capital markets have had to step up to support the economy and society in an urgent and meaningful way. The report shows during this time of crisis, a high volume of corporates have been active in the debt and equity capital markets, across a range of sectors.
And as we begin to look ahead to what will undoubtedly be an evolving new order it is evident that capital markets will continue to play a fundamental role in ensuring a sustainable and responsible recovery, centred on rebuilding a greener, fairer and more resilient economy.’
For more information on this report, please contact:
Founder & managing director, New Financial
+44 20 3743 8269
UK head of media relations
+ 44 7467 448 780
Here is a 10-point summary of ‘The value of capital markets to the UK economy’
- The relevance of capital markets to UK companies: capital markets may seem abstract and remote from the day-to-day business of UK companies but we identified 1,000 large UK companies – or nearly 90% of all UK companies with revenues of more than £200m a year – that used the capital markets between 2014 and 2018 to raise money or help manage their risks. Many of these companies have already received or will rely on funding from the capital markets (in addition to bank lending) in the wake of the Covid crisis.
- The value of capital markets to the UK economy: large UK companies that use the capital markets play a vital role in the UK economy. They employ nearly six million people in offices, factories, plants, shops and outlets across the UK – around one fifth of the private sector workforce – and a further seven million people overseas. Their combined revenues of £3.1 trillion are 50% bigger than the size of the UK economy.
- Capital markets and smaller companies: capital markets are not just for big multinationals. We identified 14,000 smaller UK companies that use the capital markets – including around 900 smaller firms listed on the stock market – who between them employ more than two million people in the UK.
- The stock market and the UK economy: nearly half of all UK companies with revenues of more than £200m are listed on the stock market. These 500 companies employ more than 3 million people across the UK and are worth a combined £2.7 trillion. Over 40% of these companies used the stock market to raise nearly £120bn. Since the middle of March nearly 100 UK companies raised £5bn on the stock market.
- The bond market and the UK economy: more than a fifth of large UK companies (excluding financials) used the corporate bond market to raise £270bn, and these 230 companies employ around 2.3 million people in the UK. Nearly 200 companies used the leveraged loan market to raise another £215bn. Since the middle of March nearly 50 UK companies have raised around £25bn in the corporate bond market.
- M&A and the UK economy: nearly three quarters of large UK companies used the M&A market either to buy another business, or to be acquired by another company, or sell part of their business. These companies employ nearly 5 million people in the UK, and a further 13,000 smaller companies were involved in M&A activity of some form. M&A will be a vital part of company restructuring in the wake of the Covid crisis.
- Private equity and the UK economy: private equity has become an increasingly popular source of funding for UK companies. Nearly a third of large companies in the UK have been involved with private equity in some form over the past five years (either owned by private equity or acquired or sold by a private equity firm) and these companies employ just under two million people in the UK.
- Derivatives and the UK economy: trading floors at big banks in London may seem a million miles away from the ‘real’ economy in the rest of the country, but more than 80% of large UK companies use derivatives in some form to help manage the risks in their day-to-day business, according to our analysis of annual reports. Derivatives are particularly valuable in the sort of volatile markets we have seen over the past few months.
- Pensions and the UK economy: the most direct connection between the capital markets and individuals is their pensions. Large UK companies contribute around £25bn a year to their employees’ pensions with an average company contribution per employee of around £2,400 a year. Large UK companies have combined defined benefit pensions assets of around £750bn, which aggregates the pension savings of millions of people into a valuable pool of capital that can be put to work in the economy.
- Framing the discussion: the banking and finance industry is an important economic sector for the UK in its own right, but its real value is the underlying role that it plays in oiling the wheels of the wider economy and helping companies and individuals raise capital and manage risk. This report underlines the importance of the capital markets to large UK companies – and to thousands of smaller companies – and the vital role they will need to play in supporting the UK economy through this crisis and in driving more long-term investment across the UK to fuel a recovery and boost productivity and growth.
Alexandra Umpleby +44 20 7595 2436 Alexandra.Umpleby@uk.bnpparibas.com
William Wright +44 20 3743 8269 firstname.lastname@example.org
About BNP Paribas
BNP Paribas is a leading bank in Europe with an international reach. It has a presence in 73 countries, with more than 196,000 employees, including around 149,000 in Europe. The Group has key positions in its three main activities: Domestic Markets, International Financial Services (whose retail-banking networks and financial services are covered by Retail Banking & Services) and Corporate & Institutional Banking, which serves two client franchises: corporate clients and institutional investors.
BNP Paribas employs more than 9,000 people across 10 business lines in the UK. These include Corporate & Institutional Banking, Exane BNP Paribas, Leasing Solutions, Arval, Real Estate (including Strutt & Parker acquired in September 2017), Asset Management, Cardif Pinnacle, Commercial Finance, Personal Finance and Vauxhall Finance. Around half of its employees are in Corporate & Institutional Banking, based in London, while the others are based in various offices across the country, including Belfast, Birmingham, Cardiff, Glasgow, Manchester.
About New Financial
New Financial is a capital markets think tank launched in 2014. We’re having a growing impact among senior industry leaders and policymakers across Europe on making the case the case for bigger and better capital markets. We’ve hosted more than 150 private events and published more than 40 in-depth reports. New Financial is a social enterprise funded by institutional membership from across the capital markets industry.
For more information, visit www.newfinancial.org