Investment banks face hard times

LONDON - Reuters

Already struggling at home with weak revenues and tough new capital and leverage requirements, investment banks are now also facing a slump in their once most promising business - emerging markets.
Fees are plummeting because of a sharp decline in first-time share listings and mergers across such economies.

Given the shaky economic outlook and weak equity valuations it is hardly surprising that global deal-making volumes are taking a hit. But the slump in emerging markets, an area banks had most hoped would drive growth, is especially precipitous.

Western banks conducted over half of all equity financing deals in emerging markets last year, compared with just 22 percent back in 2005, James Sproule, head of capital markets research at Accenture in London, has said.

The big money came from initial public offerings, or IPOs, where underwriting banks can pick up 3-4 percent of capital raised. And as emerging IPOs boomed, so did equity bankers’ fees - they topped $6.5 billion in 2007, a six-fold rise from 2000.

Fees for underwriting first-time share sales in emerging markets almost halved in 2012 from last year to $2.8 billion, according to data.