Global Investment Banking Battered After Banner Year In 2021

A lack of IPOs, a drop in stock prices, and slowing global economic growth are clouding the outlook for revenue at global investment banks, following pandemic spending by governments and central banks that fueled a blockbuster 2021 forecast, Saeed Azhar and Sinéad Carew reported for Reuters.

Photo Insert: Global investment banking net revenue has fallen to $35.6 billion Year to Date, down nearly 38 percent from $57.4 billion in the same period last year.

This year's financial markets were volatile due to Russia's invasion of Ukraine and significant monetary tightening. While this can help trading volumes, it has slowed IPOs and deals led by special purpose acquisition companies (SPACs).

Global investment banking net revenue has fallen to $35.6 billion Year to Date, down nearly 38 percent from $57.4 billion in the same period last year, according to Dealogic data. According to the data, global investment banking net revenue reached a new high of $132 billion in 2021.

"IPOs are scarce, and SPACs are now about non-existent," said Stephen Biggar at Argus Research. "The second quarter is going to be another dismal quarter for investment banking."

Biggar said while banks will make some of it up on equity and fixed income, currency and commodities (FICC) trading volume, which has been stronger than last year, "overall the quarter is likely to be much lower."

Banks have recently discussed the fading luster of investment banking - or at least parts of it. Credit Suisse warned on Wednesday, June 8, that challenging market conditions, low levels of capital markets issuance, and widening credit spreads have harmed its investment banking division's financial performance.

Credit Suisse, which warned of a second-quarter loss, has its own troubles, having suffered billions of dollars in losses in 2021 due to failed investments, as well as the impact of multiple legal cases.

This is the year of Wall Street headwinds, Main Street tailwinds," said Mike Mayo, senior banking analyst at Wells Fargo. He said trading should increase year over year but equity underwriting is under pressure.

"Having said that, the European banks as a group, have lagged US banks. This is a multi-year story that just continues to drag on longer and longer.”

JPMorgan Chase & Co. said at its May investor day that it expected investment banking revenues to fall in 2022, despite a record-breaking year in 2021.

At a recent conference, Morgan Stanley's Ted Pick stated that the new issue calendar was "extremely quiet" and the underwriting calendar was "very slow," but that the market's business was doing well because clients were hedging risk.

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