Disappointing. Dismal. Dreadful. Whatever words you choose, the first quarter was terrible for investment banks.
While the U.S. banks will be the first to detail the damage next week, the pain is likely to be especially acute for the trio of European firms -- Deutsche Bank, Credit Suisse and Barclays -- that are in the throes of restructurings under new CEOs.
January to March is typically the industry's strongest season, with clients keen to do business at the start of the year. Not so this time around. Few clients were brave enough to attempt large deals against the backdrop of volatile financial markets -- like trying to dock two ships in a hurricane, bankers say.
The value of announced share sales fell by about half in the first quarter from the year-earlier period, according to Bloomberg data. Bond issuance fell 7.6 percent, with U.S. high-yield offerings plunging 54 percent. Completed mergers slumped 82 percent.
In trading, revenue from fixed income and currencies has been falling since the financial crisis and won't offset the gloom. Bernstein analysts estimate it has declined by more than half since 2009. Market volatility in February is likely to have crimped income from equities, too: daily average equity trading declined 5.3 percent globally in the quarter.
In aggregate, quarterly investment banking revenue may fall by about 25 percent from the same period last year, according to analysts at Goldman Sachs.
Investors have been forewarned. Barclays has said repeatedly that first quarter results will fall short of last year. JPMorgan has warned that investment banking revenue will be down about 25 percent. Others have made similarly dour forecasts, and analysts have rolled back their ratings accordingly. Estimates for Deutsche Bank's full-year profit have shrunk 40 percent since the start of this year.
That leaves the new CEOs at Barclays, Credit Suisse and Deutsche Bank trying to fix up their banks at the worst possible time.
With revenue falling fast, there's more pressure to cut costs and shrink assets. But in doing so, they risk losing more revenue. Worse still, dismal results will cloud their capacity to show meaningful progress toward more sustainable returns in the long-term.
Expect each of the three CEOs to do all they can to distract investors from their quarterly numbers. Each will likely grasp at any positive news about, say, asset disposals or cost reductions. (Barclays said on Thursday it had agreed to sell its Asia wealth management unit.)
So far this year, though, investors have sent valuations on stocks in these banks to multi-year lows. Turning that around will require CEOs to do more than expectations management and distraction therapy.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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