What happened to the year of glory for European dealmakers?
Rupak Ghose
CEOs of major banks, including the bosses of Deutsche Bank and Bank of America, have warned this month of continued weakness in investment banking revenues. In a year when European stock markets and currencies have soared, you could be forgiven for thinking that Europe would have bucked that trend. But you’d be wrong. In fact, Europe remains the weakest link in global investment banking operations.
This is despite a sharp rotation out of the US early in the year (much of it to Europe) and then expectations of huge German fiscal stimulus.
After an initial Trump tariff tantrum, US stock markets have recovered more strongly than European ones, underpinned by the animal spirits of AI mania.
Indeed, the all-important US market has shown much greater signs of life this quarter in terms of IB revenues, while Asia has also proved to be much stronger than Europe in the first half.
In the first quarter, LSEG statistics show EMEA investment banking fees were down 20% year on year, much more than the global figure of an 8% year-on-year decline. This was not just about the UK – there was considerable weakness across most major countries. The MENA and Eastern European regions were more or less flat, implying a decline of considerably more than 20% for Western Europe.
EMEA in Q1 recorded its lowest share of global investment banking revenues for several years, with relative weakness across the board in terms of fees from completed deals in ECM, M&A, DCM and syndicated lending. Every single one of these areas saw double-digit year-on-year declines in fees in the first quarter in Europe.
Although deal volumes in M&A and ECM were both up in Europe, this was partly owing to an easy year-on-year comparable. Moreover, many of the higher fee areas like IPOs were especially weak with a reliance on a small number of follow-ons. The number of deals was down considerably.
Europe is also particularly skewed towards debt (rather than equity) dealflow. The former tends to have a much shorter lag time than M&A from deal announcement to fees and accounted for almost two-thirds of European investment banking fees in the first quarter. As I wrote last year, this is an area where European banks have historically done well. Prior years have seen elevated levels of bond issuance and related fees.
As the second quarter ends, the contrast between softness in European dealflow relative to the rest of the world has increased. Nowhere is this more noticeable than the IPO market. There has been an almost complete dearth of IPOs across Europe in recent months. In contrast, Q2 is shaping up to be one of the best quarters for US IPOs, with tremendous aftermarket support not just for cult stock Circle Internet but others like Chime Financial and eToro. Convertible bond issuance is also higher.
Large-ticket M&A has also picked up in the US since March. As well as deals reflecting US growth dynamism like Alphabet’s purchase of Wiz or Meta Platforms’ acquisition of 49% of Scale AI, there have been several big corporate asset restructuring/consolidation type deals including Thoma Bravo picking up part of Boeing, FIS doing an asset swap with Global Payments and cable company Charter Communications acquiring Cox.
Asian investment banking revenues have been one of the few growth areas in 2025, with particular strength in areas that international banks operate in such as ECM and M&A. After a dire period, the Hang Seng Index’s 25% rally this year has underpinned a strong fundraising spell. Brand names like BYD, Xiaomi and Baidu did follow-ons and converts co-led by top US banks.
But the Asia story is a broader one and is underpinned by the much larger trading businesses of the banks. Morgan Stanley’s Asia Q1 revenues overtook its EMEA revenues. CEO Ted Pick cited Asia as crucial to driving the firm’s best-in-class growth in equities. Morgan Stanley’s Asia CEO Gokul Laroia recently gave an interview to Bloomberg outlining a target to grow its Asian revenues by more than 30% to US$10bn within the next five years. Goldman Sachs and others also saw better growth in Asia in the first quarter.
2025 was supposed to be Europe's year. As we near the end of the first half, things haven't panned out as hoped for Europe’s dealmakers, and with banks like HSBC pulling back in European investment banking, I wonder who could be next.
Rupak Ghose is a former financials research analyst