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Financial News: Banks Suffer As Fees Plunge By Over A Third

Jun 29, 2008 Market Outlook

By Harry Wilson

Of FINANCIAL NEWS

Barclays Capital, Citigroup and Deutsche Bank were among the worst hit banks in
Europe in the first half of this year as investment banking fees dropped by more
than a third in the wake of the credit crisis.

The three banks each lost market share in investment banking and saw their fees
fall by more than their rivals, according to data from Dealogic.

Investment banking fees for the first six months of the year were an estimated
$11.6 billion, down 35% compared to the same period last year. Syndicated loan
fees were the worst hit, falling 59%, while fees from debt capital markets
activity fell 34% and mergers and acquisition fees dropped by 20%, according to
Dealogic.

This reflects a global fall in the fee pool of 36% to $31.3 billion. Deutsche
Bank recorded the largest fall of the banks ranked in the top 10 for fees, with
its revenues nearly halving to $680 million from $1.26 billion last year, a fall
of 46%. It also dropped from top of the fee table to sixth.

The most dramatic fall was in the bank’s syndicated lending fees, which collapsed
from $170 million last year to $39 million.

Globally, Deutsche Bank also experienced the largest fall in investment banking
revenues, with a 49.8% fall in fees to $1.27 billion.

Citigroup’s investment banking fees fell 45% in Europe, while Barclays Capital’s
fell 49%. Merrill Lynch was one of the only banks to increase its fee haul in
Europe, earning $705 million during the period, up nearly 10% on last year’s
figure. Its market share in Europe climbed from 3.6% to 6.1%.

Royal Bank of Scotland also recorded a rise in its fee income, which rose 13.7%
to $646 million, though this was largely a result of the takeover of ABN Amro’s
investment banking division.

While the decling investment banking fees make grim reading for bankers, senior
managers say the outlook is not all bad. Merrill Lynch’s head of European M&A,
Carlo Calabria, said the market was experiencing a “mild ice age” at the moment
but he remains optimistic.

He said: “Chief executives at companies with strong balance sheets see there
exists an opportunity at the moment to strike a deal.

“They see that deals done now could help them pull away from the pack in their
respective industries.” Other bankers agree the market outlook remains better
than many hoped, given the deterioration in the debt and equity markets. Tom
King, head of European investment banking at Citigroup, said: “The further east
you go from New York, the better the outlook gets.”

At UBS, which topped the European investment banking league table for the period
despite a 26% fall in fees, its managers remain optimistic for the second half of
the year. Simon Warshaw, joint head of European investment banking at UBS, said:
“While we are seeing a high level of enquiry and the M&A pipeline remains strong,
corporate confidence is fragile and the outcome for the year is hard to predict.”

One senior banker, who did not want to be named, said: “We’re a year into a
difficult market, but our backlog is still in the same ZIP code it was 12 months
ago and that’s pretty reasonable.”

He said that, taken in its historical context, the first six months of the year
are far from the worst the industry has seen and compare favourably with the
past.

Another senior banker said: “If you were to annualise the numbers for the first
six months, you’ll probably find this will be one of the best years in the past
10.”

Emerging markets remain one of the bright spots for most banks. A Deutsche Bank
report last week showed that M&A revenues from three out of the four Bric
countries - Brazil, Russia, India and China - were up versus last year, despite
falls in equity and debt underwriting fees.

Peter Guenthardt, head of ECM syndicate at UBS, said: “Emerging markets are in
much better shape than the mature markets but they will experience a downturn -
there has not been any decoupling.”

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Tags: Abn Amro, Acquisition Fees, Bank Of Scotland, Barclays, Barclays Capital, Credit Crisis, Debt Capital Markets, Dramatic Fall, Harry Wilson, Investment Banking, Loan Fees, Mergers Acquisition, Mergers And Acquisition, Merrill Lynch, Months Of The Year, Rose 13, Royal Bank Of Scotland, Senior Managers, Syndicated Lending, Syndicated Loan