Will a tough year finish off European investment banking?
The first nine months of 2022 have seen investment banking revenues plummet globally.
When Jefferies’ chief executive Rich Handler and president Brian Friedman wrote to all the firm’s employees at the start of September, they summed up the situation pretty well: the year had been challenging and complex.
The previous few years had seemed daunting, but the firm had been able to produce results that spoke for themselves. But this year, they said, felt different.
A glance at the 10 global investment banks that have reported earnings so far tells that story all too well. Equity capital markets revenues are down 80%; debt capital markets is down more than 40%; and advisory is down 15%. All told, the three classic investment banking businesses fell by about 50%.
Trading, particularly in fixed income, partly bailed that out. Street-wide fixed income, currencies and commodities revenues rose 15% in the year, while equities fell by 4%. Put those together with origination and advisory, and revenues were down about 10%.
Handler and Friedman sound convinced that their firm is almost uniquely placed to weather the storm. Jefferies’ capital markets and advisory revenues fell by 29% in the firm’s fiscal nine-month period, a better result than any of their broker-dealer or money centre bank competitors.
All told, the three classic investment banking businesses fell by about 50%
That in itself is remarkable when one considers the awesome industry-wide challenges that two of Jefferies’ traditional business lines – ECM and leveraged finance – have faced in 2022.
But judging by the way that revenues are drying up at some of the European franchises, it is hard to be so certain that there is reason for hope there. The dominance of the US firms in investment banking is a tale as old as time, but 2022 has made the case all the more compelling.
Deutsche Bank is in many ways a successful turnaround story at a group level, but its investment bank has been consciously de-emphasized. HSBC’s relevance seems to fade further with every passing quarter: in the last 12 months, Goldman Sachs and JPMorgan pulled in more than 10 times its origination and advisory revenues.
Barclays is still hanging on to the coat-tails of the US firms, but largely as a result of its legacy Lehman Brothers franchise. Some observers are much less confident of its ability ever to do something similar in continental Europe.
And now there is the spectacle of Credit Suisse throwing in the towel, hiving off its investment bank amid the convenient distraction of a revival of the First Boston name, but surely heading for an even more US-led investment banking future than it already had.
European investment banking is a death repeatedly foretold. And of course the region’s banks will continue to find their way onto mandates even when they are not lenders. Whether it will be profitable for them to do so is another story.