Investment bankers who received extraordinary bonuses for their efforts last year may not want to spend them for a while. Pay in 2022 is likely to be a lot lower.
Benjamin Goy, a Deutsche Bank research analyst covering European investment banks highlights the dramatically changed circumstances in a note out today. In February alone, Goy says total investment banking fees were down 50% year-on-year. In equity capital markets the decline was higher, at 80%. In debt capital markets, fees are down 50% across the board, but by 70% for high yield issuance alone. Only M&A looks relatively healthy, with a mere 6% decline, but Goy notes that this is because lead times there are longer.
A senior European industrials banker confirms that his team is busy - for the moment. "For deals we're starting on now, we have eight weeks of execution work to do before we come to fundraising," he tells us. It's not clear, however, whether fundraising will be possible in the current circumstances: "Debt and equity deals are on hold and our bankers are in limbo. Unfortunately, it's not clear when markets will reopen," he adds.
The warnings come as plans for the sale of the UK's Boots Chemist have come unstuck, partly as a result of funding difficulties relating to the war.
Goy says the first quarter was always going to be difficult for investment banking teams due to last year's strong comparables. Credit Suisse and Barclays are both most exposed to the slowdown in equity capital markets revenues, he adds.
Things might get better. Goy notes that there are some positives in the outlook - recovery from the COVID pandemic might be quicker than expected, for example. However, there are also significant risks if war becomes entrenched and the macroeconomic situation worsens. If so, there's a danger that last year's hiring across investment banking could be replaced by a round of cost-cutting.
Not all bankers are facing a period of underemployment. One Wall Street energy banker tells us he still has plenty to do. "The funding for my deals usually comes from capital markets/project finance," he says. "These transactions are being closed without too much of a problem because the credit markets are still open. We will probably start seeing more energy deals get funding easier than possibly tech deals because it's becoming increasingly apparent that energy is in some cases a national security issue."
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