Fee revenue generated by global investment banking increased for the fifth year running in 2007 by 21% to a record $84.3bn according to the 2008 edition of IFSL’s Banking report. Despite growth in fee revenue, many investment banks’ profits were hit by the $130bn in US sub-prime losses reported up to January. Further losses are likely in 2008. Losses at a few investment banks have resulted in capital injections by sovereign wealth funds.
Merger and acquisition advisory work accounted for a half of fee revenue in 2007, with the remainder generated by equity and fixed income underwriting. M&A activity increased to a record $4.5 trillion in 2007, with activity in Europe surpassing the US for the first time in the past five years. Most investment banks’ fee revenue was generated on the US and European markets, 53% and 32% of the total respectively. About a half of European investment banking activity was conducted in London.
Figures in IFSL’s report also show that UK banking sector assets totalled £6,964bn at the end of 2007, up 11% on the previous year. The international nature of commercial banking in the UK is demonstrated by a half of assets being held by foreign banks. Out of 331 authorised banks in the UK, 254 are from overseas.
As funding pressures increased in the latter part of 2007, banks have been reluctant to commit funding in interbank markets. Market loans of UK resident banks fell £3.4bn in the last four months of 2007, while claims under sale and repurchase agreements dropped by £25.2bn.
Marko Maslakovic, Senior Economist at IFSL said “While Northern Rock difficulties have cast a long shadow in recent months, UK banks’ broader economic contribution is reflected in net exports expected to reach a record £14bn in 2007, up on £12.1bn in the previous year.”
Global investment banking
sources of revenue by region |
|||||
$bn |
US |
Other |
Other |
Total |
|
2000 |
30.7 |
5.2 |
13.4 |
7.6 |
56.9 |
2002 |
18.4 |
3.1 |
7.6 |
4.7 |
33.8 |
2004 |
25.2 |
3.4 |
9.3 |
8.4 |
46.3 |
2006 |
34.3 |
6.3 |
16.5 |
11.9 |
69.0 |
2007 |
44.4 |
6.9 |
19.8 |
13.3 |
84.4 |
Source: Freeman & Co; IFSL |