Russia’s invasion of Ukraine and significant monetary tightening have led to volatile trading in financial markets this year. While this may help deal volumes, it has, however, slowed initial public offerings (IPOs) and deals conducted by special purpose acquisition companies (SPACs).
The global investment bank’s net income fell to $35.6 billion year-to-date, down nearly 38% from $57.4 billion in the same period a year earlier. early, according to Dealogic data. For 2021 as a whole, the global investment bank’s net revenue hit a record $132 billion, the data showed.
“IPOs are rare and SPACs are now pretty much non-existent,” said Stephen Biggar of Argus Research. “The second quarter is going to be another dismal quarter for the investment bank.”
Biggar said that while banks will offset some of the trading volume in equities and fixed income, currencies and commodities (FICC), which was higher than last year, “in the together, the quarter will likely be much weaker.”
Banks have been talking in recent weeks about the brilliance of investment banking — or at least parts of it.
Credit Suisse warned on Wednesday that tough market conditions, low levels of issuance in capital markets and widening credit spreads weighed on the financial performance of its investment banking division.
Credit Suisse, which warned of a loss in the second quarter, has its own problems as it suffered billions in losses in 2021 via failed investments, as well as the impact of several court cases.
“This is the year of Wall Street headwinds, Main Street tailwinds,” said Mike Mayo, senior banking analyst at Wells Fargo. He said trading is expected to rise year-over-year, but stock underwriting is under pressure.
“Having said that, European banks as a group have fallen behind US banks. It’s a multi-year story that continues to drag on longer and longer.”
JPMorgan Chase & Co said at its Investor Day in May that it expects investment banking revenue to decline in 2022, albeit after an exceptionally strong 2021.
Meanwhile, Morgan Stanley’s Ted Pick said at a recent conference call according to a transcript that within the investment bank, the new issuance schedule was “extremely quiet” and the underwriting schedule was “very slow”, although the activities on the markets are doing rather well because the customers were protecting themselves from risk.
The picture is uneven from one segment to another. While broader M&A volumes are weaker, overall activity has remained healthy and the deal pipeline still looks relatively strong, investment bankers said.
For 2022 earnings for five of the largest U.S. investment banks, Goldman Sachs, Morgan Stanley, JPMorgan, Citigroup and Bank of America, Wall Street analysts expect a 22.9% decline, according to data gathered. by Refinitiv which show expectations for a 27.4% decline for the second quarter. US banks report earnings in July.
Earlier this month, US banking executives warned of the health of the global economy, with JPMorgan CEO Jamie Dimon referring to a “hurricane” to come.
John Waldron, chairman and chief operating officer of Goldman Sachs, meanwhile told a conference earlier in June “the confluence of the number of shocks to the system, to me, is unprecedented.”
While financial services recruiters say they don’t see a hiring freeze, some have pointed to a noticeable slowdown in hiring trends from the high levels of 2021.
“It’s not as robust as last year this time around. The market is lukewarm,” said a New York-based recruiter.
Christopher Wolfe, who heads North American banks for Fitch Ratings, said capital markets are a segment that would be more exposed to a slowing economy.
“In terms of a market downturn, the investment banking and asset management segments would be the most exposed,” Wolfe said.
Keefe, Bruyette & Woods analyst Michael Brown says second-quarter commission revenue will be hurt by longer M&A closing times, though he said the pace of merger announcements is improving .
Brown also described debt capital market transactions and equity market activities such as IPOs as “dormant.”
Dealing momentum has also slowed sharply in Asia, due to regulatory repression and China’s economic slowdown, with the value of IPOs in Hong Kong’s financial hub falling 90% so far this year. compared to the period of the previous year.
“Job cuts will be inevitable if markets remain volatile and calm in terms of deal flow. Many Hong Kong banks hired heavily at the start of last year,” a market banker said. capital in Hong Kong who could not be named as he was not authorized to speak to the media.