Numerous investment bankers in the financial district of London are set to lose their jobs amid a slump in dealmaking caused by the coronavirus outbreak. Senior bankers predict that dealmaking fees could halve in the first half of 2020 compared with the previous year as the outbreak takes its toll on share prices, corporate confidence and business travel.
The effects of the virus will deepen a dealmaking crisis that has already led to a significant drop in fees for mergers and acquisitions (M&A) and stock market listings. “Its dead out there,” said one senior dealmaker at a big boutique bank in London. “Restructuring is inevitable.” The head of financial institutions at a large European bank said: “A lot of banks are already planning cuts because of the slowdown in deals. It is likely they will accelerate them because of the current situation.”
Large banks reduced headcount to an all-time low last year but investment bankers were largely spared. Of the 3,000 front-line jobs eliminated in 2019 by the world’s top 12 investment banks, only 100 were dealmakers, according to data provider Coalition. Those most at risk are senior dealmakers who have failed to bring in big fees, according to Stephane Rambosson, chief executive of headhunter Vici Advisory.
He said: “In all likelihood there will be cuts, particularly at the underperforming director- and managing-director level.” Headhunters say the virus has already had another negative impact on banking staff: hiring has been put on hold. “New hires that were due to be signed off in the first quarter of this year have already been knocked into the second half of 2020,” said a different investment banking headhunter. Adding: “There’s still a lot of fat that could be trimmed in the mid-ranks.”
Senior investment bankers kicked off 2020 in a typically bullish mood, but now admit that Covid-19 has been terrible for business. The outbreak, which was declared a pandemic by the World Health Organisation on 12 March, had infected over 144,000 people globally at the time of publication. Thereafter, the situation worsened dramatically.
Dealmakers, who spend their weeks jetting around the world working on transactions, have largely been grounded since mid-February. “You can’t do these deals without client contact,” said the head of investment banking at a European bank. “Initial public offerings or M&A, you need to be in the room with these guys.” Seven senior dealmakers in the financial district of London who were spoken to, estimated this environment will lead to a drop in fees of up to 50 per cent in the first half of 2020.
That would mean around $10.7bn in revenues for the first six months of this year across equity deals and M&As, according to data provider Dealogic. This would be the worst start to a year since the first half of 2009, in the immediate aftermath of the financial crisis. “In January and February, it was a great start to the year, but in mid-February everything stopped, aside from a couple of big deals,” said one senior European investment banker.
He added: “It could be September before it picks up again, so I’d say a 50 per cent decline is likely in the first half. The situation is really pretty dire.” The head of M&A at a large US bank said: “There’s no end in sight. A 50 per cent decline on last year at least is feasible.”
The fee pool in M&A so far this year is down 37 per cent globally, according to figures from data provider Refinitiv, which is a seven-year low. Overall, investment banking revenues are down just 8 per cent so far this year, the data show, thanks to an uptick in equity and debt capital markets transactions, but it is likely to get worse.
Severe coronavirus outbreaks have already taken their toll on investment banking revenues. In Africa, the Middle-East and central Asia, fees slumped 33 per cent to $194m so far in 2020, according to Refinitiv. In Japan, revenues fell 31 per cent, while the $3.6bn earned in Europe is an 11 per cent decline on the same period last year.
Recent big M&A transactions are not reflective of a healthy market, say bankers. “If you strip a few headline grabbing deals, it’s a very tough market,” said one senior UK-focused investment banker. “No one knows how much coronavirus will dent fees, but it will be big,” added the head of investment banking. (The writer is our foreign correspondent based in the UK. He can be reached at firstname.lastname@example.org)