According to Reuters, global investment banks are facing
declining investment banking fee income, bearing the brunt of the
amplifying Eurozone crisis. Thus, concerns have crept up in the
slothful stock market momentum.
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According to the source, global investment banking fee income fell
3.8% in the third quarter of 2012 to $15.5 billion from $16.1
billion in the year-ago period. Plummeting fees resulted from a
decline in share sale activities. Additionally, income from equity
capital markets deals dropped 31% to $9.6 billion for the nine
months ended 2012, representing the slowest period since 2003.
Major investment banks - including
Bank of America Corporation
JPMorgan Chase & Co.
The Goldman Sachs Group Inc.
Credit Suisse Group
Deutsche Bank AG
) - are expected to feel the pressure of the dipping fee income in
their upcoming quarterly earnings results.
Coupled with the falling fee income, the crisis has severely hit
securities underwriting and merger activities of the financial
institutions. However, we can expect the income from retail
divisions and wealth management wings to support earnings to some
extent, but the downfall of investment banking division would be a
On the other hand, attempts to boost revenues through non-interest
sources -- introducing prepaid cards, imposing new fees, increasing
minimum balance requirements on deposit accounts and encouraging
customers to use credit cards -- could be hampered by ongoing
regulatory actions, a volatile global economy and soaring overhead.
So, non-interest income will be able to marginally contribute to
the total revenue.
Lower industry revenue has been forcing these banks to cut costs in
order to stay afloat. As a result, banks will continue cutting jobs
and reducing the size of operations by selling their non-core
assets. So, any cost-cutting measure will act as a defense
Owing to the effect triggered by the Eurozone crisis, banks are
conducting layoffs in various divisions to curtail costs. Moreover,
new regulations and market volatility has added to the woes.
If the crisis continues further, there will be significant impact
on worldwide capital markets. On the other hand, the extremely low
interest-rate environment is another manifestation of this
uncertain macro backdrop. Concerns about the European finances and
soft U.S. growth prospects have made treasury instruments the
choice of safe asset class. As a result, the yields on benchmark
treasury bonds are hovering at all-time low levels.
Clearly, the banking system is still not out of the woods, as there
are several nagging issues that need to be addressed.
Given the progress in the industry so far, it seems that banks may
encounter several disappointments ahead before gaining investors'
confidence. In fact, the negatives could offset the positive
developments to a great extent. We don't expect the potency of the
sector to return to its pre-recession peak anytime soon.