Uh oh. After a grim past year for investment banking revenues, bankers were hoping for a strong start to 2023 to lift the mood, but industry fees from M&A advisory, underwriting and syndicated loans were down 37% in January from a year earlier.
It was the lowest January fees tally for seven years, according to Refinitiv data, and will stoke fears that a slump in deal activity will extend at least through the first half of this year with no end in sight to the war in Ukraine and other jitters around inflation, interest rates and potential recession.
Boutique advisory firm Evercore said on Wednesday it started the year with a strong deals backlog, although it is down from where it was a year ago. “Similar to last quarter, there remains greater risk to execution, as transaction announcements continue to be slower and the timing of closings is elongated,” Evercore chief executive John Weinberg told analysts.
Refinitiv's fee data certainly support that view. Global fees from M&A, debt and equity underwriting and syndicated loans were US$6.16bn in January, down from US$9.76bn a year before, Refinitiv estimated.
January 2022 was relatively strong for fees as it was before Russia’s invasion of Ukraine on February 24, but the level of activity last month is nonetheless a worry – it was the lowest January tally since 2016 and was 25% below the 10-year average for January of US$8.26bn, the data show.
Debt underwriting fees were relatively resilient, aided by strong euro issuance from financial firms last month. Fees from DCM were US$3.08bn in January, accounting for half of all fees but still down 18% from a busy start to 2022. Last month’s DCM fees were below the high levels in January in each of the past three years, but they were higher than any year before 2020.
All other areas showed their worst January for many years, however: fees from ECM were US$583m, down 59% from a year earlier and the worst January since 2009; fees from M&A totalled US$1.93bn, down 43% from last year and the lowest January level since 2013; and fees from syndicated loans were US$569m, down 52% on the year and the lowest January since 2010.
The better news for banks is that while macroeconomic uncertainty hits investment banking fees it often fuels decent trading revenues. Deutsche Bank showed the mixed impact on Thursday, with fourth-quarter origination and advisory revenues down 71% to €196m, but revenues from fixed income and currencies up 27% to €1.52bn to help power the German bank to its highest annual pre-tax profit for 15 years.
Goldman Sachs was the top fee earner in January after bringing in US$377m, Refinitiv data showed. That was down 36% from a year earlier, but it kept JP Morgan in second spot after its fees fell 44%.
Barclays bucked the gloomy start and its fees in January were US$278m, up 26% from a year earlier and lifting it to fourth spot globally, dislodging the traditional top five of the big US banks (for details see story in People & Markets section).