Investment banking revenues at Europe's largest lenders fell in the second quarter as global market conditions continued to deteriorate, weighing on debt and equity issuance.
Aggregate second-quarter advisory and underwriting revenues at major European investment banks, including Barclays PLC, BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Société Générale SA and UBS Group AG, declined more than a third year over year.
Most banks booked weaker revenues than a year ago. Only French groups BNP Paribas and Société Générale posted revenue growth in their global banking, and financing and advisory units, respectively. The increases were largely attributable to business mix as revenues at both BNP Paribas and Société Générale were boosted by the strong transaction banking business in the quarter.
Apart from "a sharp increase" in trade finance and cash management across all regions, BNP Paribas' global banking revenues were driven by resilient capital markets business in Europe and higher M&A advisory revenues, CFO Lars Machenil said on the group's second-quarter earnings call.
Société Générale's performance against its peers was due to the much smaller size of its pure investment banking business, including deal advisory and debt and equity underwriting, global banking chief Slawomir Krupa said on the second-quarter earnings call. This is the key reason for its year-over-year revenue growth in this segment of a market "which is crashing somewhat for some of our peers," Krupa said.
Weaker underwriting revenues drove the overall revenue decline at many of the European investment banks in the sample. All of the banks that report capital markets revenues separately booked year-over-year drops in this business area for the second quarter, while advisory revenues were higher year over year for all banks except Swiss group UBS.
Credit Suisse CFO David Mathers attributed the advisory revenues increase to "significant deal closing," while his Deutsche Bank counterpart, James von Moltke, said advisory revenue growth was driven by "market share gains in a reduced fee pool year on year." After booking an 8% year-over-year rise in second-quarter advisory revenues, Barclays' deal pipeline remains strong, Finance Director Anna Cross said during the U.K. bank's earnings call.
The 30% decline in UBS' advisory fees was driven by a drop in the Americas, which was large enough to offset the strong fee growth in Asia-Pacific, the bank said in its second-quarter earnings release. CFO Sarah Youngwood noted that UBS managed its risk well amid a tough market environment, with the global fee pool down 51%.
The second quarter of 2022 was the slowest quarter for global investment banking fees since the first three months of 2019, Refinitiv said in its latest sector report. Fees in the first half of 2022 dropped to a three-year low of $56.7 billion and were 31% lower than in the same period of 2021, Refinitiv said.
In the first half of 2022, equity capital markets, or ECM, fees recorded the largest year-over-year drop of 72%. Debt capital markets, or DCM, fees and M&A advisory fees fell 26% and 6% year over year, respectively, according to Refinitiv data.
Global slowdown
The drops in ECM and DCM fees reflect the slowdown in global issuance, which continued to slacken in the second quarter as the global economic slowdown, soaring inflation and tightening monetary policy by central banks in Europe and the U.S. kept most issuers on the sidelines, Dealogic said in its latest capital market reports.
Second-quarter global ECM issuance dropped to its lowest level in nearly 11 years while global bond sales dropped 43% year over year amid rampant inflation, continued supply chain disruptions and concerns over rate hikes and the war in Ukraine, Dealogic said.
Global deal-making in the first half fell in both value and number of M&A transactions, by 23% and 20% year over year, respectively, Dealogic data shows.
Weaker debt and equity underwriting fees drove the investment bank fee decline at most European banks, with Credit Suisse booking the largest drop in capital markets revenues.
Credit Suisse's "disappointing" second-quarter result was mainly due to weaker fees in ECM and leveraged finance, where there was "a substantial slowdown in market activity" in the period, outgoing CEO Thomas Gottstein said during a second-quarter earnings call.
The embattled Swiss bank, which named a new CEO in July amid an ongoing major restructuring, has launched another revamp of its investment bank "with the aim of achieving a less-complex, capital-light advisory-led banking business," Gottstein said. The unit has been struggling to return to profitability since it lost 98% of revenues in prime services, a business Credit Suisse sold in the wake of the collapse of U.S. hedge fund Archegos Capital in early 2021.
Uncertain outlook
The ongoing initial public offering freeze driving the slump in ECM volumes and fees is unlikely to improve in the second half of 2022, barring an "unexpected" economic recovery, research company Tricumen said in its second-quarter investment banking review.
While the deal advisory business performed relatively well over the first half, the outlook for M&A financing in the rest of the year is uncertain, especially in Europe, Tricumen said.
"So far, banks have provided the financing, but economic uncertainty and central banks' tightening is making deal financing costlier and more difficult to access," the company said.