* Global investment banking fees down 7 pct year to date
* European fees at 10-year low as euro zone woes bite
* M&A, ECM fees tumble; bond issues provide rare bright spot
* JPMorgan tops global fee rankings, Deutsche top in Europe
By Sarah White and Kylie MacLellan
LONDON, Dec 21 Fees for advising on mergers,
share listings and bond issues have fallen again in 2012,
forcing investment banks to cut jobs and start overhauling
business models they had stuck by in times of crisis over the
Economic woes, particularly in the euro zone, have hurt
dealmaking and dragged worldwide investment banking income down
7 percent to $69.4 billion so far this year, data from Thomson
Reuters and Freeman Consulting showed.
In Europe, fees were at a 10-year low as volatile markets
forced many companies to put off plans to list or make
acquisitions, and the prolonged slowdown is pushing even top
advisers to restructure teams and cut back.
Some are even contemplating more drastic options.
"The key question is not only about one specific team, but
banks are really wondering which investment banking activities
they should keep or if they should continue to have investment
banking at all," said Christopher Kummer, from the Institute of
Mergers, Acquisitions and Alliances, a think tank.
Weaker revenue in other areas, such as stock and bond
trading, is also putting pressure on banks to pick and choose
which divisions they should stick with as tougher regulations on
capital make it harder to offer everything.
Some banks, such as British group Royal Bank of Scotland
, have already chosen to practically abandon equities
trading, while Swiss lender UBS is ditching the bulk
of its bond trading business.
Pure advisory units, which earn fees from devising deal
strategies rather than commissions from trades, have so far been
spared the worst cuts, as they do not use much capital.
But they are still costly to run, especially as bankers in
areas such as mergers and acquisitions, who often hold down
relationships with clients, have traditionally commanded some of
the biggest pay packages.
CUTTING AND CHANGING
That is likely to change this year as bonuses fall. M&A fees
- though still the biggest contributor to the total investment
banking fee pot - have tumbled 16 percent so far this year.
Fees from equity capital markets, meanwhile, suffered the
biggest drop - 18 percent - from an already weak 2011, as
initial public offerings faltered.
As a result, banks are starting to reshape their corporate
finance teams to make them more profitable by cutting out
bankers who focus on clients in certain industries or countries,
reversing efforts over the past decade to build up teams
providing very specialised advice.
Many are grouping these sector teams together, or getting
junior bankers to multi-task instead of specialising - a move
that will likely continue in 2013 when dealmaking is not
expected to pick up in a big way.
"We are trying to make some efficiency gains and it is
hard," said a senior capital markets banker in London, who
"You have somebody who covers banks in Germany because they
are a German national and a German speaker and you would love
for that person to cover French, Italian and Spanish banks."
The banker said those coverage issues were particularly
tough to deal with in Europe, because of the sheer number of
countries that banks try to service. But U.S. banks such as
Citigroup have also been overhauling their so-called
BRIGHT SPOT IN BONDS
U.S. banks dominated global investment banking fee rankings
in 2012, the data showed, with JPMorgan retaining the
top spot. In Europe, Deutsche Bank captured the most
fees, while Goldman Sachs inched ahead of UBS in Asia as
the top fee earner.
One bright spot for firms was a big rise in debt capital
market (DCM) fees, up 28 percent as companies rushed to issue
bonds in the second half when fears over euro zone debt levels
Bankers said bond deals would be an important source of fees
in 2013 as companies struggle to obtain loans, which also take
up a lot more bank capital.
Societe Generale forecast in a recent report that activity
levels in DCM would drop back a little, however, and said high
volatility in the past four years, since the 2008 financial
crisis, made it difficult to bet on trends continuing.
"Looking back and moving forward: that is usually quite a
dangerous thing to do in a car, and not advisable in capital
markets either," it said.