The league tables for the first half of this year make for depressing reading for investment banks. And it’s unlikely to get better anytime soon.
You know things are bad when investment banks that you have never heard of – such as Banque Saudi Fransi, Berenberg and Samba Capital – are showing Goldman Sachs a clean pair of heels in the league tables.
But a flick through the preliminary first half league tables from Dealogic shows the depths to which capital markets activity in Europe has sunk. Take the ranking of bookrunners on IPOs for the first six months of this year in EMEA, according to Dealogic:
Samba Capital, a privately-owned Saudi Arabian bank not previously known as a giant in the capital markets, is sandwiched between JP Morgan and Morgan Stanley in fourth placed, having led the $365m IPO of Saudia travel firm al-Tayyar in May. Its local rival Banque Saudi Fransi is just a few spots behind with more IPO credits than Bank of America Merrill Lynch and Goldman Sachs. And Berenberg Bank, which claims to be the world’s oldest private bank, is tucked in just behind Credit Suisse for its role on the $900m IPO of Swiss business services firm DKSH.
Things can only get better?
Of course, it is unlikely that Berenberg or Samba are about to overtake Goldman Sachs or JP Morgan at the top table of global investment banking. In such a thin market it is difficult to draw any conclusions, except perhaps that it is hard to see how European capital markets could sink much lower.
In the second quarter of this year IPOs in Europe raised just $1.8bn. No European IPOs larger than $100m are set to price in June for the first time in more than 20 years. And IPO volumes of just $5.2bn in the first half across Europe were half the level of last year and marked the third worst start to the year on record, according to Dealogic.
It doesn’t get much prettier in M&A or debt capital markets: European M&A was down 26% in the first half, and debt issuance by 20%.
In strictly economic terms, this is not a catastrophe: investment banks only make around 20% of their revenues from investment banking per se. But investment bankers are expensive to employ in the best of times, and they are an unaffordable luxury when they are sitting around twiddling their thumbs. With no signs of recovery in investment banking activity, many more of them will be losing their jobs in the next few months.
More importantly, capital markets activity is a strong indicator of both corporate and investor confidence. It feeds into a negative feedback loop of lower volumes, lower trading, lower confidence, higher volatility, and lower volumes. Until this vicious circle is broken, investment banks will continue to spiral downwards with it. And banks like Samba and Berenberg will continue to beat Goldman Sachs in the league tables.
Other ‘highlights’ from the Dealogic league tables:
- Global investment banking revenues of $12bn in the second quarter of this year are the lowest since Q1 2009, and in the first half they fell 31% compared with 2011.
- As the rest of the world falls apart, fees from US investment banking accounted for 45% of global fees, the highest level since 2004.
- JP Morgan is top in global DCM, ECM and loans. Deutsche Bank is top in Europe. UBS is not in the top 10 in Europe, but held on to its top ranking in Asia.
- Global debt issuance dropped by 44% in the second quarter compared with the first, and by 29% on last year.
- In Europe, BNP Paribas is top for euro-denominated debt, RBS for corporate investment grade debt (no, really), and Barclays is top of pretty much everything else.
- Global equity issuance is running at its lowest level since 2005, and in Europe the first half was the lowest since 2003.
- US M&A is at its lowest level since the first half of 2003.
I’ll stop there. I think you get the picture.