This is the slow death of investment banking in 4 charts

REUTERS/Pascal Deschamps

Skeletons parade during the 124th edition of the carnival in Nice February 17, 2008. The carnival, which will run until March 2, honours the Chinese Year of the Rat with characters showing cats, rats and bats.

Investment banks are under pressure.

Regulation, sluggish economic activity, and political uncertainty have all combined to depress revenues.

Investment banks have been scrambling to find a new business model that more than covers the cost of their capital.

A report from Coalition, which analyses banks’ revenue data, shows just how dire the situation is.

Revenue started falling five years ago, and hasn’t stopped yet. Investment banking income for the first half of 2016 is lower than that of 2008 – the year that saw the fall of Lehman Brothers and the peak of the financial crisis.

Here’s Coalition (emphasis ours): 

“Despite a strong 2Q16 performance in FICC, 1H16 Investment Banking revenues were still weaker than 1H08, driven by weakness in IBD and Equities throughout 1H16, and a very weak 1Q16 in FICC.

With revenues under pressure, banks are trying to protect their bottom line with renewed cost saving initiatives, including further headcount cuts and optimisation of their pyramid structure.”

And here are the charts:

The cuts aren’t working yet. “Despite these cost savings coupled with reductions in RWA/Leverage Exposure, Investment Bank ROE remains under pressure reflecting the negative revenue dynamic.”

Fixed income, commodities and currencies use to be the big revenue driver. Not anymore. “1H16 declined owing to the particularly weak 1Q16 and continued weakness in Commodities and Securitised Products.”

Political turmoil has halted capital market activity. “Significantly reduced primary activity in an environment of uncertainty triggered by political events in the EU, with extremely weak performance in ECM, and to a lesser degree DCM.”

Banks are cutting trading and sales jobs. “Headcount reductions continued, particularly in Sales, as several banks continue to optimise their FICC business model especially in Emerging Markets and Securitisation.”

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