Banks’ M&A Earnings Drop to Lehman Low

Anousha Sakoui and Daniel Schäfer in London and David Gelles in New York

Investment bank earnings from mergers & acquisitions and debt and equity capital markets has slowed to a low not seen since the collapse of Lehman Brothers, with 2012 on course to be the worst year for the industry since 2004.

Bankers generated $50.1 billion in fees in the year to date, down 16 percent on the first nine months of 2011. They were down 6 percent on the second quarter of 2012. It was the slowest quarter for investment banking fees since the first quarter of 2009, while European fees for the first nine months fell to their lowest levels since 2002, according to data provider Thomson Reuters.

Despite the proposed merger of Swiss trader Glencore and miner Xstrata , global M&A values were down 18.5 per cent for the first three quarters against the same period last year and down 23 per cent in the last three months, according to Mergermarket.

After a brief respite during the second quarter, the bruising of corporate confidence caused by the volatility in global financial markets has dented US M&A activity, where values were down over 23.7 percent in the year to date. European M&A has been hit harder – the third quarter was its lowest in three years and down 49.4 percent from the second quarter of 2012.

While Asia-Pacificis the one region to see M&A rise in the third quarter – up 13.9 percent quarter-on-quarter – the $238.6 billion of deals announced in 2012 so far is down 16 percent year-on-year.

Bankers point to a flurry of activity in the past few weeks as a source of renewed confidence, not least the potential tie-up between EADS and BAE .

Sentiment has been bolstered by the European Central Bank plans to support bond marketsand counter concerns about a eurozone break-up. Global high-yield bond issuance – fuel for buyouts – rose 100 percent from the second quarter to $109 billion in the past three months.

“While we are seeing cycle highs in debt issuance, we are equally much closer to the bottom of the cycle in terms of M&A and equity,” said Richard Gnodde, co-head of the investment banking division at Goldman Sachs. “As confidence returns, that cycle will turn again.”

While Goldman Sachs tops the M&A advisory league tables, JPM stays at the top of the league by investment banking fees.

“Clients have adjusted to living in an uncertain world, and sensible CEOs with a long-term strategy will use M&A as part of their strategic toolbox to reshape their portfolios regardless of the environment,” said Henrik Aslaksen, global head of M&A at Deutsche Bank.

Wilhelm Schulz, head of European M&A at Citigroup, said conditions boded well for a rebound in the fourth quarter. He said: “There is a huge backlog of transactions.”