Investment banks will continue to face revenue decline, says survey

By @diplomatist10 on
Logos are seen outside a branch of Barclays bank in London July 30, 2013.
Logos are seen outside a branch of Barclays bank in London July 30, 2013. Reuters/Stringer

Revenue of the world's 10 largest investment banks will be down by 2 per cent in 2015 and touch US$148 billion (approx. AU$208 billion) compared to 2014. Only the equities division in those banks will be immune from the revenue fall, said a recent survey.

The third quarter results were weak for many investment banks, where revenue slipped an average 8 per cent, according to a survey by industry analytics firm Coalition. The survey tracked Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS.

Excessive regulations

It noted the impact over regulation as reason for the slump in investment banking revenue, especially in Europe. The effects of tougher regulations, high litigation costs and market volatility have prompted most of the banks to restructure and shed staff and business segments, reports Reuters.

Most of the new regulations hit hard on the fixed income, currencies and commodities (FICC) division. That segment used to deliver half of the revenue to investment banks and is facing a revenue fall of seven percent at $64.8 billion (approx. AU$90.2 billion) in 2015 as compared to 2014, the Coalition's data showed. The data revealed that the decline was more than 50 per cent in many of the top 10 investment banks.

Equity biz up

However, the bright spot seems to be equity business division, where revenue may surge 12 per cent on year-on-year basis to US$44.8 billion (approx. AU$63.8 billion), as investors keep rotating fixed income products to equities. The impending interest rate hike in the US is also making the division more lucrative.

Investment banking divisions that advise on mergers and acquisitions (M&A) and equity and debt underwriting are also facing a decline of almost 6 per cent, compared to 2014 and the revenue will slip to $38.2 billion (approx. AU$53.8 billion).

The study also noted the falling headcount in many investment banks. There was a decline of one percent in the third quarter compared to 2014, with 3 per cent decline showing up in FICC alone, while investment banking division and equities are not showing any substantial change.

Acquisition of Simmons

Meanwhile, Piper Jaffray Companies are mulling the buy out of Houston's most respected energy investment banks, Simmons & Co International, in a $91 million cash (AU$128.15 million) and $48 million stock deal.

Simmons is one of the leading investment banks in Houston with a huge influence on research, capital raisings and mergers in the oil and gas industry. It was founded by late Matthew Simmons, known for his so-called peak oil theory that claimed the world was running out of crude.

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