Morgan Stanley executive forecasts follow-ons to increase

As Morgan Stanley executive said Monday the number of follow-on issues in USA will increase and continue for several weeks, starting to shift away from banking sector.

Last week the number of share issuance by already public companies exceeded $15 billion for a second week in a row. These dealings include large deals of Dow Chemical Co, carmaker Ford Motor Co together with US Bancorp’s ($2.5 billion) and BB&T Corp’s ($1.7 billion) deals. All of them had Morgan Stanley as managing underwriter.

"In the next several weeks, follow-on volume will still be at a higher level, but I do think the mix is going to be less dominated by financials," Dan Simkowitz, Morgan Stanley's managing director and chairman of global capital markets, told in an interview.

Morgan Stanley was a lead underwriter on seven of the nine follow-on deals conducted by banks following the release of the results of the U.S. government's "stress tests." Also it was a book-runner of $1 billion deal by casino operator MGM Mirage.

"Non-financial, cyclically oriented companies have seen how the market digested Ford and MGM," said Simkowitz. "These companies that want their balance sheet to be stronger are clearly focusing on what the market can absorb."

Morgan Stanley was also a lead underwriter for some large initial public offerings this year, nutrition maker Mead Johnson Nutrition Co, language training software maker Rosetta Stone Inc, satellite image maker DigitalGlobe Inc included. According to the statement of Simkowitz this sequence of successful IPOs indicates the return of risk appetite. The first of above-named IPOs shows that an IPO is an asset class investors are willing to look at, and the last two of them show that the people are ready to go further and take more risk, as noted Morgan Stanley executive.

"The risk-taking that we're seeing, and the reentry into equities we are seeing in the form of follow-ons bode well for a pickup in IPO volume post-Labor Day," Simkowitz said.