Investment bank fees fall by $ 24bn as deal boom loses steam

Dealmaking fees at top investment banks slumped by as much as 56% during the first half of 2022, as recessionary fears and rising interest rates have halted a boom that broke records last year.

A sharp downturn in equity capital markets activity, as both the surge in special purpose acquisition companies last year tumbled and initial public offerings dried up amid volatile markets, has led to a broader downturn in dealmaking. M & A has dropped from last year’s highs and securing funding. for mammoth deals through the leveraged loans market has become much tougher, according to dealmakers.

Globally, fees dropped by 38% to $ 39.4bn in the first half of 2022, according to data provider Dealogic, while European revenue fell by the same percentage to $ 9.1bn.

Overall, banks are set to make $ 24.6bn less from fees in the first six months of this year compared with 2021. But the downturn in revenue is sharper at some of the leading investment banks in the world.

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Credit Suisse, which has battled successive crises and an exodus of dealmakers over the past 12 months, suffered the biggest fall in fees of around 56% compared with the same period last year, according to Dealogic. Its share of the fee pool has fallen from 3.7% to 2.8% over the past 12 months.

JPMorgan, which still tops the global fee pool, has brought in 46.6% less than at the same point in 2021, while Goldman Sachs, in second place, has seen its investment banking revenue shrink by 45.5%.


Dealmakers point to the record levels of activity last year when banks hauled in a total of $ 130bn, and say that activity — especially for M & A deals — was still heightened and in line with recent years up until recently. However, deal flow has been stymied in recent weeks by rising interest rates, the looming prospect of a recession and inflationary pressures.

Alison Harding-Jones, head of M & A for Europe, the Middle East and Africa at Citigroup, said that deals have become “tricky” in recent weeks, even if activity remains relatively robust.

“I think it will get trickier as we go forward,” she said, citing the combination of inflation, interest rates and the war in Ukraine. “I don’t think we have meetings with clients where we don’t talk about recession and what the impact of that is in the very short term. It will hurt activity. ”

M & A activity is down by 21% globally to $ 2.1tn so far in 2022, and has fallen by 4% in Europe. Compared to a 68% drop in ECM volumes — to $ 257.6bn — and a 72% drop in IPOs, M & A has held up relatively well.

However, Harding-Jones said there are increasingly mismatches in the expectations of transacting companies.

“We are seeing big gaps in views on value between buyers and sellers,” she said. “The sellers are often rooted in the past and the buyers are often rooted in a negative view of the future. Sometimes they’re not bridgeable.”

Henrik Johnsson, head of European investment banking at Deutsche Bank, said that motivations for doing deals were shifting. “You’ve gone from a situation where you’re not desperately hunting for growth, but instead you may be looking for consolidation to take out. costs in a recessionary environment, ”he said.

READ Bankers warn the $ 130bn deal fee bonanza is fizzling fast:’There could be cuts later this year’

Bank executives have already flagged sharp falls in fees as the second-quarter reporting season prepares to kick off.

Daniel Pinto, chief executive of JP Morgan’s corporate and investment bank, said during an investor presentation in May that fees are likely to be down by 45% on the previous year, while Citi’s head of global markets Andrew Morton told an industry conference in June that investment banking revenue could be down by 55% during the period. Jefferies, a bellwether for how its larger rivals will fare in the second quarter, reported a 31% drop in investment banking and capital markets revenue for the period on 27 June.

ECM bankers are not optimistic that activity will bounce back any time soon. Johnsson said there remains an “expectation gap” between companies and cornerstone investors on IPO pricing.

“There’s still more time that needs to pass before the potential sellers of assets and the buyers of assets are willing to agree on a price,” he said.

Suneel Hargunani, co-head of ECM at Citigroup in Emea, said investors need to see “more confidence”, potentially through well-performing “landmark” deals before IPOs start to recover.

“There is a healthy pipeline in September, but if we’re being realistic, a lot of those deals will shift to 2023. We still think it will be a very selective IPO market,” he said.

With revenue slumping, job cuts are expected at banks later in the year, Financial News reported in May after conversations with senior dealmakers. German bank Berenberg and UBS are among those to have trimmed their ranks already, and more cost-cutting is expected.

This follows a hiring spree of both senior and junior dealmakers last year as banks struggled to retain talent and battled for a bigger share of the market during record deal activity.

Despite the recent slump in revenue, some senior bankers remain optimistic longer term, with macro issues also likely to drive deal activity, they said.

Nacho Gutiérrez-Orrantia, head of banking, capital markets and advisory for Citi in Emea, said that as well as the transition to cleaner energy sources, there is “a new ESG in place, which is about energy, security and geopolitics. This is going to be driving a big part of dealmaking going forward. ”

To contact the author of this story with feedback or news, email Paul Clarke

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