European investment banking fees next year may rise the most in five years, as lenders are forced to raise capital and indebted nations such as Greece sell assets, according to Freeman Consulting.
Revenue from arranging mergers, stock, bond and loan sales in Europe, the Middle East and Africa may climb 14 percent to $26 billion in 2012, from $22.8 billion in 2011, New York-based research firm Freeman estimated. It would be the biggest percentage gain since 2007. Fees derived from Asia Pacific may be unchanged at about $16.4 billion in 2012 amid dwindling stock offerings in China, according to Freeman.
European fees may increase because of “forced recapitalizations in banks and privatizations by cash strapped sovereigns,” said Teck-Tjuan Yap, a managing director at Freeman in New York.
Banks in Europe may need 100 billion euros ($138 billion) to 230 billion euros of additional capital to meet new regulations, according to estimates by Morgan Stanley and JPMorgan Chase & Co. Those that can’t raise enough money through share sales would be required to take capital from their governments or the European Union and may face curbs on paying bonuses and dividends, European Commission President Jose Barroso said Oct. 12.
European leaders will consider the plans at a meeting in Brussels Oct. 23 before the Group of 20 leaders meet in Cannes on Nov. 3-4. Meanwhile, countries including Greece, Spain and Italy, seeking to curb their debt to regain investor confidence, will be forced to sell assets, potentially boosting investment banking commissions.
Some bankers aren’t convinced of an investment banking boom next year.
“The bank capitalization side of the equation is going to be big,” said Philip Keevil, a partner at New York-based advisory firm Compass Advisers LLP. “The problem is that there are no initial public offerings being done, the high yield market is dead and the mergers and acquisitions market is at a very low ebb. I’m very skeptical of a bonanza coming.”
Fees for so-called rights offerings, or sales of shares to existing investors, averaged at around 3 percent in 2009 when lenders including HSBC Holdings Plc sold stock to replenish capital. Companies in Europe, the Middle East and Africa raised a record $127 billion in rights offers in 2009, indicating securities firms may have earned $3.8 billion in arrangement fees, data compiled by Bloomberg show.
In 2011 “I expect full year volumes to exceed last year’s, subject to a positive resolution of some key decisions by the European Union in the coming days,” said Stephan Leithner, co-head of investment banking coverage and advisory at Deutsche Bank AG. “Cross-border M&A in particular has proven robust, even in the most recent turbulent markets,” he said. The value of M&A in Europe has risen 20 percent this year to date to $769.8 billion, according to data compiled by Bloomberg.
The European Commission on Sept. 15 cut its euro-region growth forecasts for the second half and warned the economy may come “close to standstill at year-end.” The International Monetary Fund in Washington on Sept. 20 also lowered its growth projections for the euro region, Germany and France for this year and next.
“It takes a broader pick-up in confidence in the wider economy to spark a notable jump in fees,” said Matthew Clark, a London-based bank analyst at Keefe, Bruyette & Woods Ltd. “That’s going to take some time, months not weeks.” Fees may rise by about 10 percent, he said.
Deutsche Bank this year earned $972 million in commission, the most in the region since 2007, followed by JPMorgan Chase & Co. with $920 million and Goldman Sachs Group Inc. with $735 million, according to Freeman. Frankfurt-based Deutsche Bank earned more than a third of its fees from bond sales, followed by M&A and equity offerings, the results show.