Investment banking revenues in the United States are expected to be down more than 50 percent from last year, to nearly $35 billion through mid-December, according to data provider Dealogic. It stands in stark contrast to 2021, one of the busiest years for deals and the most lucrative year for investment banking revenues in more than a decade. Last year, banks generated nearly $71 billion in investment banking revenue in the US, according to Dealogic.
The state of affairs in the United States
Economists are surprised by the recent strength in the labor market, as the Federal Reserve tries to induce a slowdown and contain inflation.
In October, food delivery company Instacart withdrew plans for an IPO amid market turmoil, cutting its valuation from $40 billion to $24 billion. The business of taking special purpose companies public, which had brought billions of dollars in fees to banks in recent years, also disappeared.
Over the summer, JPMorgan Chase’s attempts to sell Worldpay, a payment processing unit of Fidelity National Information Services, to private equity firms failed, according to two people in the know. The would-be buyers, who would have had to borrow billions of dollars from banks to finance their purchase, declined the asking price of at least $30 billion, the people said.
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Many of the big investment banks, including Morgan Stanley, Bank of America and Barclays, also have about $13 billion in debt on their balance sheets — money they loaned to Elon Musk to fund his $44 billion acquisition of Twitter. one of the tech industry’s hottest deals of 2022.
Normally, banks would turn around and sell that debt to investors. But the market for the kinds of loans used to finance buyouts has all but dried up, forcing many banks to keep them on their balance sheets. That makes new loans more difficult for banks, especially since they may have to write off the value of that debt as Twitter shakes off advertisers and Mr. Musk warns that the company is on a “fast jobto bankruptcy. And that means a smaller bonus pool at many banks.
Few analysts or bankers expect a strong rebound in investment banking revenues in 2023, so cutting bonuses is an important way for banks to keep costs in check, especially since compensation is one of Wall Street’s biggest expenses — and bonuses make up a big part of it.
