Worldwide investment banking revenues down 45% for Q1

Global investment banking revenues plummeted to $12.5 billion in the first quarter of 2008, a 45% decrease over the past 12 months and down 42% from the end of 2007, according to a report published on April 2 by London-based data provider Dealogic.

Banks have continued to suffer from the weaker economic conditions created by the credit crisis in the third quarter of last year. The report stated mortgage-backed securities and asset-backed securities revenue totalled $193 million in the first quarter of 2008, the lowest quarterly revenue on record, down 59% quarter on quarter and 88% year on year as activity in securitisations continued to slow.

Another area of revenues that suffered was syndicated lending, which dropped  to $1.6 billion, 70% down from March 2007. Debt capital markets followed a similar trend, with a decrease of 49% to $3.5 billion. High-yield issuance generated $151 million, the lowest quarterly revenue since 1995.

Similar trends are noted in the quarterly report of the US banking regulator, the Office of the Comptroller of the Currency, on US bank trading and derivatives activities, published April 2. For 2007, US commercial banks recorded $5.5 billion in trading revenues, down $13.3 billion from the record of $18.8 billion in 2006. In Q4 of last year, banks lost $9.97 billion trading cash and derivatives instruments - down $12.3 billion from third-quarter revenues of $2.3 billion.

“The large losses in the fourth quarter are the result of well-publicised writedowns on the super senior tranches of collateralised debt obligations backed by subprime residential mortgage securities,” said the deputy comptroller for credit and market risk, Kathryn Dick.

“We expected to see an adverse effect on trading results given current turbulent conditions in the credit and capital markets, particularly in light of the deterioration in market liquidity,” she added.

The report showed the notional amount of derivatives held by US commercial banks decreased $8 trillion in the fourth quarter to $164 trillion. Despite the reduction, the fourth quarter 2007 derivatives total is 25% higher than it was at the same time in 2006. Derivatives contracts are concentrated in a small number of institutions. According to the report, the largest five banks hold 97% of the total notional amount of derivatives, while the largest 25 banks hold almost 100%.

See also:
UBS reveals $19 billion more subprime losses
UK financial sector feels pain of credit crisis
Bank writedowns - is the worst over?