UPDATE 1-Investment banking fee income falls to lowest since 2009

Fri Sep 28, 2012 6:57pm IST

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* Global investment banking fees $15.5 bln in Q3

* JP Morgan tops fees league table

By Kylie MacLellan and Douwe Miedema

LONDON, Sept 28 (Reuters) - Investment bankers are pinning their hopes on more confident companies and investors to help boost deal activity, after a slow year in which global investment banking fee income fell to its lowest since early 2009.

Global investment banking fees totalled $15.5 billion in the third quarter, down 3.8 percent on the year before, according to data from Thomson Reuters and Freeman Consulting, as the euro zone debt crisis unsettled markets.

Europe has been particularly hard hit by the slowdown in deals, with investment banking fees in the region so far in 2012 falling to levels not seen in 10 years.

"We all will need to be accustomed to the new normal," said Jake Donavan, head of corporate and client coverage for Europe, Middle East and Africa at JPMorgan. "This is not just a question of waiting for the economic boom times to return. We're in a potentially protracted period of more subdued growth.

"We're having a fantastic year in terms of investment grade debt and high yield (debt). M&A (mergers and acquisitions) is more sluggish and equity is relatively quiet, although we are seeing some green shoots."

Others also saw grounds for optimism as corporates are sitting on plenty of cash.

"We're seeing a number of corporates considering moves," said Giuseppe Monarchi, co-head of the EMEA Mergers and Acquisitions Group at Credit Suisse.

"The execution risk remains relatively high in many cases, but perhaps also because of continued low interest rates and fairly healthy debt markets, I think there is a window where things can actually happen."

JPMorgan retained its top spot in the global investment banking fee league table, earning $3.6 billion so far this year. Bank of America Merrill Lynch was in second place, bringing in $3 billion, followed by Goldman Sachs in third on $2.7 billion, the data showed.

POTENTIAL WORRIES

Globally, the drop in fees has been driven by a fall in share sale activity, with income from equity capital markets deals tumbling 31 percent to $9.6 billion so far this year, the slowest period since 2003.

Equity generally offers a more risky investment than debt securities - which offer better protection in case of bankruptcy - so subdued volumes in equity capital markets are a sign that investors are still cautious.

The third quarter has shown more promise and bankers said an uptick in IPO activity in the last few weeks, helped by a rally in stock markets, could signal a rebound in capital raisings in the final three months of the year.

"There is still a challenging market environment even though there is a lot more going on," said Adam Welham, head of European equities syndicate at Barclays.

"Although there is a lot more confidence around Europe, attention may quickly focus on growth, and what is happening in China. These are potentially big worries and they may have a big effect."

Debt financing is the only area which has seen an increase in fees this year, up 14 percent on the first nine months of 2011, the data showed.

Yet M&A deals made up the biggest chunk of fees, raising $5.3 billion or 34 percent of the total.

The planned merger of commodities trader Glencore and mining group Xstrata, the year's biggest pending deal in terms of total fees, could provide a further boost, with banks expecting to collect a total of $114 million for their advice if the deal is completed.

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