Investment banking

Fees in Free Fall

Skyscrapers stand in the financial district as commercial and residential property is seen on the city skyline in Frankfurt, Germany, on Thursday, Oct. 23, 2014. At noon in Frankfurt on Oct. 26, investors will learn which of the currency bloc's 130 biggest banks fell short in the European Central Bank's year-long examination of their asset strength and ability to withstand economic turbulence. Photographer: Martin Leissl/Bloomberg
Hard times for investment banks.
  • Why it matters

    Why it matters

    After a booming year for IPOs and stock issues in 2015, numbers are down sharply in Germany and abroad for 2016.

  • Facts


    • Germany saw a 97-percent decline in IPO business in the first half of 2016.
    • There has been an increased appetite for European stocks, especially in the United States.
    • There has also been a boom in mergers and acquisitions.
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Banks are no strangers to hard times, with regulations, zero interest rates, cost pressures and all. But now it’s getting tougher in the very area that they previously relied on to deliver strong profits: investment banking.

In the first half of the year, investment banks earned less in Germany than ever before. Banks specializing in mergers and acquisitions, share and bond placements took in $684.5 million, 40 percent less than in the first half of 2015, according to a study by Thomson Reuters carried out for Handelsblatt.

This shortfall is mainly due to fears surrounding the British referendum and its possible exit from the European Union. Investors’ uncertainty, coupled with significant fluctuations on the market, led to fewer IPOs and capital increases.

“In terms of the mood, the second quarter was better than the first but a lot of companies postponed their IPOs because of the referendum,” said Josef Ritter, who heads Deutsche Bank’s stock issuing business in Europe. A glimmer of hope for the M&A business came as Bayer signaled its plan to take over Monsanto.

In terms of commission revenue, Morgan Stanley knocked Deutsche Bank from the top of the ratings list, earning $55.6 million, ahead of $49.8 million at Germany’s largest bank. Barclays Bank trailed in third with earnings of $40.8 million.

Banks saw their smallest earnings ever in the first half of the year.

It’s a painful contrast with last year when the IPO business was going swimmingly and 14 companies ventured onto the trading floor, selling shares for more than €7 billion. Younger investment bankers couldn’t even remember the last time there had been a boom like that. It was in 2007.

But the good times are already over, it seems, as this year, only a couple of companies issued new shares: wind turbine builder Senvion and biotechnology company Brain. And they’re still trading at prices significantly lower than their issue prices. Last week, microlender My Bucks managed to complete an IPO on its second try, though it had to scale back its goals significantly and brought in only €15.5 million.


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So far, business in 2016 is way less than what Klaus Steinbach of consultancy E&Y had hoped at the start of the year. Back then, he said, “up to 15 IPOs in Germany seems realistic.” He didn’t know that candidates like Hello Fresh would to put their plans on ice for the time being, given the uncertain environment and higher price fluctuations.

This helps to explain the 97-percent decline in the business in Germany to $3.8 billion in the first half of the year, compared to 2015, according to Thomson Reuters’ calculations. Worldwide, business was hard hit but only by 43 percent, to $313 billion, according to Dealogic.

In Germany, the result was the worst half year since 2009, but many in the industry hope the second half will work out better once the question of Britain’s membership of the European Union is clearer. “The appetite for European shares, especially in the United States, recently rose again. As soon as important decisions have been made, this will likely provide a boost. European stocks remain one of the most coveted investment classes,” said Armin von Falkenhayn, head of Bank of America Merrill Lynch in Germany.

For now, the sluggish business in investment banking pulled down banks’ results overall. Banks saw their lowest earnings ever in the first half. In their business with bonds, mergers and acquisition, stock issues and loans in Germany, banks earned $684.5 million, 40 percent less than in the first half of 2015, Thomson Reuters calculated. And the first six months of last year were already the worst for fee revenues since Thomson Reuters began collecting the data in 2000.

The M&A boom didn’t help, despite a 172-percent increase in Germany to more than $120 billion compared to the previous year. This is because fees for mega transactions like the Bayer acquisition of Monsanto are only payable after the deal is complete.

Business is still expected to run smoothly, now that “the financing conditions for companies are extremely good,” said Nicolo Salsano, co-head of German investment banking at Credit Suisse. Many transactions are shifting to the second half of the year. Still, “the pipeline for M&A deals is currently very full, despite what remains a volatile environment,” said Christian Zorn, head of investment banking Morgan Stanley in Germany.

The bond business in Germany was less promising as placements declined by 6 percent to €200 billion. There were more bonds from development banks and, most of all, mortgage bonds but the market for new corporate bonds saw a surprisingly sharp 30-percent decline to $40 billion. The German market is running counter to the trend, as bonds in euros are popular with companies worldwide, due to the low refinancing costs and the corporate bond purchases by the European Central Bank announced in March.

Globally, companies outside the financial industry have issued bonds in the common European currency for about €180 billion since the beginning of the year, slightly up from the same period last year.

Matthias Minor, head of the corporate bond business for the Royal Bank of Scotland in Germany, said there are two reasons why there were significantly fewer corporate bonds from Germany: “First, Volkswagen – one of the biggest issuers on the capital market in recent years – has not a issue a large bond this year yet. In addition, German companies are holding back with dollar transactions.”

The lack of new dollar bonds is also due to the fact that many M&A transactions have not yet been completed. “But M&A refinancing is likely to increase,” said Felix Freund, fund manager with Standard Life Investments. He said companies will buy back more old bonds in the future, and will issue more favorable new bonds with longer maturities instead.

However, “despite the current favorable financing terms, we expect no flood of corporate bond issues, aside from M&A activities,” said Christoph Paul, head of the German corporate bond business for the investment bank at Crédit Agricole. “Instead, what will be critical is if and for what companies need the capital they are raising.”


Handelsblatt’s Andrea Cünnen reports on the bond markets. Peter Köhler writes about banks, private equity firms, venture capital and corporate funding. Robert Landgraf is Handelsbaltt’s chief financial correspondent. To contact the authors:,,

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