Houston Chronicle Sunday

Worst investment banking year since 2016 ends for Wall Street

- By William Shaw and Fareed Sahloul

The world’s biggest investment banks endured their worst year for dealmaking and fundraisin­g since 2016 after surging interest rates and economic gloom chilled the sector.

The 100 largest banks by revenue made $77.1 billion from mergers and acquisitio­ns and equity and debt issuance in 2022, a 38 percent drop from the previous year, BCG Expand Research in London said. The value of global dealmaking slumped about a third to $3.6 trillion last year, according to data compiled by Bloomberg.

“With the inflation we have at the moment, the high interest-rate environmen­t isn’t going to go away overnight, and this year is also likely to be difficult,” Jordan Galhardo-Burnett, head of publicatio­ns and insight at Expand Research, said. Banks may focus on other areas such as bond trading and commoditie­s that performed well in 2022, he said.

BCG’s data include the likes of Goldman Sachs, Citigroup, JPMorgan Chase and Morgan Stanley. Goldman Sachs worked on $982 billion worth of transactio­ns last year, the most for any bank in Bloomberg’s data. That was roughly a quarter less than the U.S. bank’s total for 2021. JPMorgan came second with $733 billion of deal credit, a drop of more than a third on the previous year.

U.S. banks, which start reporting fourth-quarter results next week, have already signaled tough conditions are affecting performanc­e. Goldman Sachs’s investment-banking revenue in the third quarter fell 57 percent, more than analysts had forecast. Revenue from equity and debt underwriti­ng collapsed, as did merger-advisory fees. At Citigroup, fees from investment banking plummeted 64 percent in the third quarter, while JPMorgan saw fees drop 47 percent.

It adds up to a grim bonus season for dealmakers. Bankers advising on M&A are likely to see their bonuses decline as much as 20 percent, Johnson Associates estimated last year. Their counterpar­ts in underwriti­ng will probably have the largest drop, with incentive pay plunging as much as 45 percent, according to the compensati­on consultant. Companies raised about $204 billion from initial public offerings during 2022 — down more than two thirds on 2021’s tally — the Bloomberg data show.

Last year was “like the party coming to a halt and the hangover kicking in” for investment banking, with government­s turning off their pandemic support and Russia invading Ukraine, said Julian Morse, chief executive of London-based small-cap broker Cenkos Securities. Yet he thinks further bad news about the war and the economy is already priced in, meaning any positive surprises could rebuild confidence in the market.

Banks are expecting investment banking to rebound from mid-2023, and a tight labor market may counterbal­ance any layoffs, which will be less severe than during the financial crisis, according to Eric Li, head of global banking research at Coalition Greenwich.

Newspapers in English

Newspapers from United States