As we enter the second half of 2022, there are not many indications that investment banking division revenue is about to rebound in the way that many people were hoping for when the war in Europe broke for the first time. In London in particular, IPOs are now at an all-time low since 2009. And the longer it lasts, the louder the whispers about all the job cuts to come.
Where are these most likely reductions? Compared to 2022, there is no denying that the investment banking division’s revenues have fallen dramatically. However, 2022 is not the best benchmark: for most banks, 2022 was an abnormally good year, against the backdrop of an equally abnormal year 2021. The real reference is therefore the more normal years of 2017, 2018 and 2019.
The significance of this longer-term comparison is illustrated by the JPMorgan chart below (from December 21). While banks are unlikely to cut due to a drop from the 2021 peak, they could cut if revenues fall below the three-year black line through 2019 At the end of last year, European banking analysts at JPMorgan predicted that investment banking revenues would decline. in 2022, but not by this a lot. This turned out to be far too optimistic.
Instead, as shown in the chart below, Dealogic’s numbers show that at the end of May 2022, some banks’ combined investment banking revenues were well below their averages for 2017/2018/ 2019. Five months into the year, revenue should have reached 42% of the annual total. Instead, at HSBC, Barclays, UBS, Deutsche Bank and Credit Suisse they were considerably below.
In other words, it’s not just that this year’s revenue is lower than 2022. It’s that it’s way below the longer-term benchmark. Especially at Credit Suisse.
This is likely to become a growing problem as 2022 progresses, particularly in equity markets where the decline is most dramatic. If revenue were simply down from 2021, the drop might be digestible, but teams are the right size for standard revenue environments and 2022 proves anything but that.
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