Market Turmoil Overshadows First-Half Gains by Investment Banks, Says Report by The Boston Consulting Group
The Investment-Banking Industry Picked Up Steam in First Two Quarters, but Recent Events Have Cast a Pall Over Short-Term Prospects for Recovery
| Source: The Boston Consulting Group
BOSTON, MA--(Marketwire - September 30, 2008) - Investment banks achieved a $15 billion
turnaround in revenues in the second quarter of 2008, according to a report
by The Boston Consulting Group (BCG), but recent gains have been
overshadowed by the collapse of Lehman Brothers and concerns that the
financial crisis may continue to deepen. The report, "Investment Banking
and Capital Markets," is being released today.
The aggregate revenues of nine leading investment banks climbed from -$2.2
billion to $12.9 billion in the second quarter. As a result, BCG's
Investment Banking Performance Index, which tracks the profits of these
investment banks, jumped from -376.5 to -193.8.
The turnaround came as a result of a sharp decline in losses from
fixed-income trading, together with strong growth in corporate-finance
activity:
-- Revenues from fixed-income markets were -$9.9 billion in the second
quarter, up from -$20.9 billion in the first quarter. Write-downs continued
to take a toll on some banks but were partially offset by increased
revenues from interest rate and foreign-exchange products.
-- Corporate-finance and advisory revenues improved from $3.0 billion to
$8.8 billion. M&A advisory revenues actually declined slightly, while the
volumes of equity and bond issuance grew by 76 percent and 37 percent,
respectively.
"Banks' second-quarter gains followed some encouraging results in the first
quarter," said coauthor Achim Schwetlick, a partner in BCG's New York
office and one of the leaders of BCG's Investment Banking practice. "The
industry showed signs of recovery earlier in the year, but some of the
momentum generated in a few product areas was masked by continued
write-downs in others."
Revenues of leading investment banks were negative in the first quarter,
largely due to
write-downs. Excluding write-downs, however, first-quarter revenues were 18
percent higher than in the previous quarter.
The report provides a brief overview of the implications of the financial
crisis for investment banks. "Although the industry has proven resilient in
the face of past crises," Schwetlick said, "the current turmoil is
unprecedented. Banks will have to focus on stabilizing the business,
strengthening risk management, and developing additional opportunities for
growth, but cost reductions will be particularly important to the
industry's recovery."
Schwetlick added, "In past crises, investment banks typically used
innovative products and services to grow their way out of trouble: they
looked for breakthroughs on the revenue side. Many avenues for growth and
innovation are now closed. As a result, investment banks will need to
prioritize efforts to reduce costs in order to restore ROE to precrisis
levels."
To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at + 1 617 850 3783 or
gregoire.eric@bcg.com.
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