Global investment banking (IB) revenue nosedived to almost USD 16bn in 1Q23, the lowest first quarter in thirteen years, falling from almost USD 25bn in 1Q22, as the deal-making heyday of the past two years faded like a dream. Headlines this year have been dominated by the US banking crisis which had reverberations globally, oil price increase as oil majors cut production, stubborn inflation, and the technology blow-up which resulted in global layoffs and valuation declines.
Notable this year was the absence of large M&A deals, particularly those above USD 10bn; the ECM market tumbled in large pockets of the world, particularly, the Americas, EMEA, and Southeast Asia; while higher interest rates in the Americas and EMEA forced corporates to think twice before borrowing. All of this contributed to IB revenue across all four categories – M&A, ECM, debt capital markets (DCM) or bonds, and loans – sinking to lows not seen since 1Q10.
JPMorgan and Goldman Sachs maintained their long-term dominance at the top of global revenue charts – and were the only two banks to net more than USD 1bn apiece. New entrants in the 1Q top-ten were BNP Paribas and Evercore. Fees from pandemic darling technology fell 45% to USD 2.2bn while the only sector in the top-ten which brought in more revenues than last quarter was transportation, which grew 9% to about USD 640m.
In 2023, fees from Asia-Pacific are expected to fall the least as the region remains most insulated from the financial tumult in the US and ongoing geo-political crisis in Europe. Meanwhile, a global driver of growth in the M&A segment could be private equity firms who have a new dry powder record to the tune of USD 3.7trn globally, as per a report by Allvue Systems, a solutions provider to the PE/VC industry.
Americas: investment bankers pocket less than USD 10bn for third quarter in a row
Investment banking revenues in the Americas dove to USD 8.5bn in 1Q23, down 37% from 1Q22, and a 57% decrease from a high point in 1Q21 as corporates slammed the brakes and reassessed inorganic growth ahead of a looming recession.
Fees from M&A, as they have in the past, contributed to a little less than half of the total revenue pool, though it was down 34% to USD 3.9bn. Only three Americas-targeted deals north of USD 10bn were announced this quarter – two of which were in healthcare – versus nine in 1Q22 as deal values clocked downwards. Pfizer’s [NYSE:PFE] USD 45.6bn blockbuster purchase of Seagen [NASDAQ:SGEN] could set the tone for more transactions in the space as the valuation gap between buyers and sellers narrows and firms such as Abbott Laboratories [NYSE:ABT] and Amgen [NASDAQ:AMGN] seek deals, according to proprietary intelligence by Mergermarket.
Deals this year are expected to be studded by non-core divestitures such as Warner Bros Discovery [NASDAQ:WBD] reported sale of its music catalogue business, healthcare firm Viatris’ [NASDAQ:VTRS] proposed sale of its India-based active pharmaceutical ingredient [API] business, and Goldman Sachs’ [NYSE:GS] reported sale of its consumer business.
While certain bright spots could be gleaned on the M&A front, the same could not be said about ECM. As capital markets shut down, and corporates cancelled debut listings, fees from this segment fell 15% to USD 1bn in 1Q23 from 1Q22.
Fixed income told a similar story with fees from debt capital markets (DCM) sliding 26% to USD 2.5bn last quarter, as compared to 1Q22, while loans fell 64.5% to USD 1bn. Financial institutions, energy and natural resources, and industrials were the top-three fee generating sectors.
In 1Q21, Americas’ top-five banks earned between USD 1bn and USD 2.5bn each. Last year, only three banks scraped more than USD 1bn each. This year, none of the top-three winners JPMorgan, Goldman Sachs or BofA Securities achieved that USD 1bn watermark.
EMEA: M&A and bond markets provide lifeline to EMEA’s investment bankers
Investment banking fees in EMEA consecutively declined each quarter since 2021’s heyday, dropping to USD 4.3bn in 1Q23 from USD 6.4bn in 1Q22, as fees in the region reached a low not seen since the midst of the pandemic in 2Q20.
EMEA has faced a number of headwinds over the quarter, including a spillover from the US financial crisis underlined by beleaguered Credit Suisse’s ongoing deal with UBS, the European Central Bank hiking interest rates to curb stubborn inflation, and the continuation of the Russia-Ukraine war – past its one-year anniversary.
Turbulent markets put a brake on corporate listings, wiping out earnings from ECM. These fell to a pittance – just USD 400m in 1Q23, marginally above 3Q22 when ECM fees hit a three-year low. Fees from loans had their worst quarter ever, sinking 65% to USD 280m.
The tiniest of bright spots lingered in the bond markets from which revenues were flat at USD 1.8bn as compared to the quarter prior. Still, the shift in corporate issuances was visible as more A-rated rated tranches came to market while non-rated issuances fell to a mere fraction of 1Q22 volumes. Only consumer giant Philip Morris International [NYSE:PM] and German turnaround specialist Mutares [ETR:MUX] raised capital for finance as compared to five players each in 1Q21 and 1Q22.
Fees from M&A, though down 44% to USD 1.8bn from 1Q22, also provided a much-needed life support. Together with fees from bonds, these brought in 84% of all EMEA revenues. The quarter saw only 23 deals north of USD 1bn as compared to 59 in 1Q22 and 72 in 1Q21. Unlike in the Americas, where fees came almost equally from strategic and financial sponsors, in EMEA, corporates paid the chunk of fees particularly from sectors such as energy and natural resources underscored by players including National Grid [LON:NG], Shell [LON:SHEL], and Schneider Electric [EPA:SU].
American giants JPMorgan, Goldman Sachs and Citi crowned fees from the region, followed by regional heavy-weights BNP Paribas and Barclays. Citi was the only bank in the top-five to show marginal revenue growth from 1Q22 to 1Q23.
Asia-Pacific: ECM revenue continue to dominate
While IB fees in Asia-Pacific fell in line with the rest of the world – down 31% to USD 3.3bn from 1Q22, the region is expected to remain partially insulated against the headwinds affecting the rest of the world. Late last year, Beijing lifted its stringent zero-Covid policy which could pave the way for more deals this year; the Bank of Japan’s new governor Kazuo Ueda signaled the country’s financial stability relative to Europe and North America; India is expected to attract a chunk of overseas capital; while renewable deals will continue to be signed in Australia and Indonesia.
There was one major difference between IB fees between the Americas and EMEA versus Asia-Pacific: while M&A and DCM or bond markets generated huge chunks of fees elsewhere, in Asia-Pacific, ECM continued to be the region’s bright star, pulling in about USD 1.4bn in Q1 fees, almost 42% of the fee pool. Fees from IPOs were slightly lower than those generated in 1Q22 with the bulk of fees generated from China’s industrial and technology space. Follow-on offerings generated a tad more fees than they had in 1Q22, indicating the strength of regional markets and appetite from investors.
Though lower than 1Q22, fees from DCM or bond markets at USD 1bn also contributed to a major part of IB earnings, the majority of which stemmed from investment-grade issuers. Companies raised capital mainly for general capital purposes, capex, and refinancings while only a fraction was raised for acquisitions as compared to 1Q21 suggesting the region’s corporate appetite for deals could be slowing. Loans, meanwhile, fared the worst in Asia-Pacific as compared to other segments, with revenues down about half from 1Q22 at just above USD 150m, marginally higher than 4Q22 results.
Fees from M&A also fell substantially quarter-over-quarter at to about USD 720m as transactions took a breather as they waited for cues from the global economy. Japan and Australia accounted for more than 50% of the region’s M&A fees, while South Korea’s third place finish saw it overtake China, which has rarely not been a top-three generator of M&A fees. In line with the rest of the world, smaller deals were announced: only nine north of USD 2bn versus 12 in 1Q22.
In Asia-Pacific, the top-three banks across all four categories were CITIC Securities, China Securities and JPMorgan.
*Dealogic Revenue Data: Dealogic uses a proprietary revenue model to estimate investment banking fees across four key products: M&A, equity capital markets (ECM), bonds or debt capital markets (DCM), and loans. Dealogic awards M&A fees 10% upon deal announcement and 90% upon completion.
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