As we move into the second half of 2022, there aren't a whole lot of indications that revenues in investment banking divisions are about to revive in the manner that many people hoped when war in Europe first broke out. In London in particular, IPOs are now at their lowest level since 2009. And the longer this goes on, the louder the muttering about all the job cuts to come.
Where are these cuts most likely? Compared to 2022, there's little denying that investment banking division revenues are down dramatically. However, 2022 is not the best baseline for comparison: for most banks, 2022 was an abnormally good year, on the back of an equally abnormal 2021. The real baseline is therefore the more normal years of 2017, 2018 and 2019.
The importance of this longer term comparison is illustrated by the JPMorgan chart below (from December '21). While banks are unlikely to make cuts based on a decline from 2021's peak, they might make cuts if revenues fall below the black line of the three years to 2019. At the end of last year, JPMorgan's European banking analysts predicted investment banking revenues would decline in 2022, but not by that much. This has proven far too optimistic.
Instead, as the chart below shows, figures from Dealogic show that at the end of May 2022, some banks' combined investment banking revenues were tracking far below their averages for 2017/2018/2019. Five months into the year, revenues should have been at 42% of the annual total. Instead, at HSBC, Barclays, UBS, Deutsche Bank and Credit Suisse, they were considerably below this.
In other words, it's not just that this year's revenues are off compared to 2022. It's that they're far lower than the longer term baseline. Particularly at Credit Suisse.
This stands to become an increasing problem as 2022 goes on, especially in equity capital markets where the decline is most dramatic. If revenues were simply down on 2021, the decline might be digestible, but teams are right-sized to standard revenue environments and 2022 is proving anything but.
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