World Economy

Investment Banks’ Earnings Decline

Investment Banks’ Earnings DeclineInvestment Banks’ Earnings Decline

Revenue at the world’s 10 largest investment banks is on course to decline again in 2015 by 2% to $148 billion compared to a year ago, although a strong showing in equities will limit the fall, a survey on Tuesday showed.

It follows a weak third quarter, when revenue slipped by 8%, the survey by industry analytics firm Coalition showed, Reuters reported.

Investment banking revenue has slumped in recent years, especially in Europe, as tougher regulations, litigation costs and market volatility have prompted banks to restructure, shedding staff and exiting certain business lines.

Trading in fixed income, currencies and commodities divisions, which make up about half of investment banks’ revenues and has been particularly hit by new regulation, is set to fall a further 7% to $64.8 billion in 2015 compared to last year, Coalition data showed.

It has declined by about 50% at the top 10 investment banks globally since 2009, according to the data.

One bright spot was banks’ equity businesses, where revenue is set to rise 12% year-on-year to $44.8 billion, as investors rotate out of fixed income products into equities with the prospect of a US rate hike in December looking increasingly likely.

Investment banking divisions, which advise on mergers and acquisitions and equity and debt underwriting are set to record a 6% decline from last year to $38.2 billion, with a buoyant mergers and acquisitions market offsetting weakness in debt and equity issuance.

Across all the investment banks tracked by Coalition, which include Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS, revenue declined 8% in the third quarter to $34.1 billion compared to a year ago.

In the third quarter, FICC revenue declined 18% to $14.2 billion, IBD revenue declined 3% to $9.1 billion and equities revenue increased 4% to $10.9 billion.

Headcount at the investment banks declined 1% in the third quarter compared to a year ago, with a 3% decline recorded in FICC, whilst IBD and equities remained the same.