Deep dive: investment banking revenue plunges to pre-pandemic levels
Global investment banking (IB) revenue nosedived in 9M22, battered by market volatility brought on by geo-political tension, surging inflation, soaring interest rates, and dampened corporate ardor. As mergers and acquisitions (M&A), equity capital markets (ECM) and fixed-income volumes and deal count cratered, so IB fees were down 39% in the year to date (YTD; to 30 September) to USD 60bn, marginally higher than the USD 58bn netted in 2019 prior to the advent of the pandemic.
It has not been all doom and gloom, though. Fees from M&A fell only 12% to USD 27bn in 2022 YTD, and it still marked the third-highest year on Dealogic record. By contrast, ECM collapsed 68% to USD 9bn, as equity markets all but shut down. Fees from both debt capital markets (DCM), or bond markets, and syndicated loans slumped 40% to USD 15bn and USD 9bn, respectively.
JPMorgan and Goldman Sachs dominated the first two places among revenue earners so far this year, as they have done for the past eight years. BofA Securities edged out last year’s third-place incumbent, Morgan Stanley.
M&A fuels deals in Americas
Of the USD 32bn of IB fees generated by the Americas – driven primarily by the US – the biggest chunk of about USD 15bn came from M&A, which also saw the smallest decline by product from the same period last year at 21%. Technology, energy and natural resources, and healthcare proved to be 9M22’s top-three most lucrative sectors when it came to M&A fees, while the 10 banks playing leading roles this year were almost the same as last year’s: Goldman Sachs, JPMorgan, Morgan Stanley, BofA Securities, Jefferies, Evercore, Citi, Centerview Partners, and Barclays. The only exception was Lazard which overtook Credit Suisse. Meanwhile, ECM suffered its lowest regional decline, retreating a hefty 81% to only USD 3bn.
Both Americas fixed-income products saw similar declines in 9M22 at an average 45.6%, with DCM sliding to USD 7bn and loans to USD 6bn. Across both products, fewer companies and institutions sought to borrow in the current higher interest-rate environment. For both bonds and loans, fees from high-yield issuances were down much more than investment-grade, as investor appetite for riskier deals evaporated. JPMorgan, BofA Securities, and Wells Fargo Securities were the leading beneficiaries of fixed-income revenue.
EMEA revenue reflects Americas trend
European M&A bankers had reason to cheer in 9M22. Revenue across the product dipped only 11% to USD 8bn, with the UK and France being the only two countries to contribute more than USD 1bn apiece. While fees for the UK declined from 9M21, several countries have generated higher fees than last year including Germany, the Netherlands, Italy and Switzerland. This suggests a robust pipeline of deals among strategics and financial sponsors. Industrial, technology and financial institutions were the top-performing sectors, each coining in more than USD 1bn, while JPMorgan, Goldman Sachs, and Rothschild & Co were EMEA’s top M&A bankers, landing more than USD 500m in fees per company. ECM, as it did in the Americas, took a pasting, plummeting 80% in 9M22 to only USD 1bn of revenue.
Reflecting a similar trend to that of the Americas, even on the fixed-income side, both DCM and loans decreased 33% to USD 4bn and USD 2bn, respectively. Fees from DCM, driven mostly by corporates, but also including sovereigns, supra-nationals, and asset-backed securities, dived to lows not seen since 9M11. On the loans side, as with high-yield corporate bonds, leveraged loans fell more than their investment-grade counterparts. JPMorgan and BNP Paribas, as they have since 9M19, were the highest fee earners in EMEA fixed income, while Barclays replaced Citi in third place.
Asia-Pacific IB revenue buoyed by ECM
Unlike the Americas and EMEA, where total IB revenue was down 45% and 34%, respectively, Asia-Pacific (APAC) revenue in 9M22 declined 29% to USD 12bn. China, as it has since 9M19, contributed more than 50%, followed by Australia and Japan, which have historically swapped second and third places. APAC fees derived from M&A were almost on a par with last year’s numbers, driven by deals in industrials, financial institutions, and technology.
While fees from ECM fell 33% to USD 5bn compared with 9M21, it still brought in the biggest chunk of revenue, as has been the case during the past two pandemic-afflicted years. This was the first time since 9M17 that APAC’s top-three ECM bankers – CITIC Securities, China Securities, and China International Capital Corp (CICC) – all hailed from China, usurping the usual stalwarts Goldman Sachs, Morgan Stanley, and UBS.
Fees from loans totaled USD 1bn, almost on a par with last year’s levels, while bond fees tumbled 33% to USD 4bn. Leading fixed-income bankers in APAC were CITIC Securities, China Securities, and Mizuho, while the top fee-generating sectors were financial institutions, industrials, and energy and natural resources.
*Dealogic Revenue Ranking Data: Dealogic uses a revenue model, which makes use of public data and proprietary algorithms, to estimate investment banking fees across four key products: M&A, equity capital markets (ECM), debt capital markets (DCM) or bonds, and loans.
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