Big firms suffer as investment banking fees plunge 23%

Dollars

Investment banking (IB) fees plunged by more than a quarter in the UK and Ireland in the first half of 2016, new figures show.

Global turnover for the six-month period was $37.1bn (£27.9bn), down 23 per cent on the same period in 2015, according to Thomson Reuters. This was the lowest first-half figure since 2012.

And the decline was even more prominent in the UK and Ireland, with IB revenue totalling $2.5bn, down 28 per cent. Europe as a whole was down 26 per cent.

Read more: Investment banks endure worst first quarter since financial crisis

JP Morgan took the largest slice – seven per cent – of revenue during the period, with $2.6bn in fees. But this was down 23 per cent year on year.

Goldman Sachs’ IB revenue, meanwhile, was down 30 per cent to $2.4bn; Bank of America Merrill Lynch’s was down 24 per cent to $2.1bn; and Morgan Stanley’s dropped 27 per cent to $2.1bn.

Ian Gordon, Investec’s head of banks research, said the figures were “directionally unsurprising” and was not hopeful of a recovery in the second half of the year, forecasting further job losses.

“[It] provides a foretaste for an extremely challenging outlook for IB revenues going into the second half of this year and beyond – which will be met by further rounds of rationalisation and cost reduction,” he told City A.M.

“If you work on the assumption, as I would, that this will have a reasonably extended duration – we’re not talking about one or two quarters of weak numbers – you would expect banks to react accordingly in terms of trying to preserve some elements of profitability in these activities.”

He said the figures reflected a decline in mergers and acquisitions (M&A) activity and initial public offerings (IPOs).

Read more: Brexit and Donald Trump expected to hit already falling M&A activity levels

Simon Hunt, PwC’s UK banking and capital markets lead, told City A.M. the global figures reflected the “fragility” of the economy in the first half of the year, pointing to China’s troubles and oil price volatility.

On the UK figures, he pointed to caution around the 23 June EU referendum. He was slightly more positive than Gordon on the outlook for the second half of year, saying it was “quite difficult” to predict.

“I think people are still digesting the results of the referendum, and you’ve obviously got the presidential elections coming up, you’ve got some speculation that interest rates will have to be cut,” he said. “So you’ve got some uncertainty built into the second half of the year.

“That said, the decline in deals in the first half of the year means that there is a relatively good pipeline of deals coming up in the second half of the year and people will still need to do transactions.

“So it won’t surprise me if the second half of the year does see a better performance than the first half of the year.”

Full story: Big firms suffer as investment banking fees plunge 23 per cent: City A.M.

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