Global investment banking fee income fell 25 percent in Q2

Fri Jun 29, 2012 7:42am EDT
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By Sarah White and Lauren Tara LaCapra

LONDON/NEW YORK (Reuters) - Global investment banks' fee income dropped by about 25 percent in the second quarter, reaching its lowest level since early 2009 as the widening euro zone crisis weighed on securities underwriting and merger activity, Thomson Reuters data show.

The fees totaled nearly $14 billion in the second quarter, down from more than $18 billion in the first quarter of 2012. Year to date, fees have totaled $32 billion, down 25 percent from the same period in 2011.

Though the pain has been widespread, dealmaking in Europe has been particularly tough, with new listings in the region almost stalling completely.

"Early signs were good, but while the U.S. market has remained robust, sentiment in Europe has given way to worries over the world economy and the euro zone," said Viswas Raghavan, global head of equity capital markets at JPMorgan.

Weaker fee income is likely to hurt second quarter income for major investment banks. But the pain will be felt elsewhere, too. For example, bond and stock trading revenues, usually investment banks' cash cows, could fall 12 percent from an already difficult second quarter last year, analysts at Morgan Stanley said.

Trading revenues could be down close to 40 percent compared with the first quarter, when European Central Bank cheap money injections boosted trading, helping earnings for top players like Goldman Sachs Group Inc (GS.N: Quote), Morgan Stanley (MS.N: Quote), Barclays PLC (BARC.L: Quote) and Deutsche Bank AG (DBKGn.DE: Quote).

Few bankers are predicting that this situation will change any time soon, and the gloomy backdrop will have immediate and also longer term implications for top firms.

Jon Peace, banking analyst at Nomura, said he had pretty much halved second quarter earnings estimates for the players almost entirely dependent on trading and investment banking, like Goldman, after a very weak month for activity in May.   Continued...

The headquarters of Morgan Stanley is pictured in New York June 1, 2012. REUTERS/Eric Thayer