Deutsche chiefs call the bottom for banking fees

Senior bankers at Deutsche Bank in the US are the latest to voice their optimism over “green shoots” of recovery in the financial services industry, predicting that investment banking fees have bottomed out and should slowly start to increase on the back of increased mergers and acquisitions and a flurry of recapitalisations in the equity markets.

During the tail end of the boom, between January and July 2007, the average monthly fee pool was €4.9bn ($6.9bn) according to a Deutsche Bank analysis of data from Dealogic, the investment banking research provider.

This monthly average fell to €3.4bn between August 2007 and July 2008 when the credit crisis hit, and since last August this has decreased even further to €2.1bn.

However, since March there have been three consecutive months of fee pool increases - although May was still 19% less than the credit crisis average and 45% lower than during the end of the boom.

Jim DeNaut, head of global banking Americas at Deutsche, is confident that the rise will continue. He said: “Investment banking fee pools have bottomed out and should continue to go up slowly but will not reach the levels between 2004 and 2006 until M&A comes back.

“We hope to see more financing activity in the fourth quarter with the fiscal stimulus spurring other activity in the first quarter of 2010.”

The value of announced global M&A totals $1.03 trillion (€737bn) so far this year, 38% lower that at this point last year, according to Dealogic but Bruce Evans, head of M&A Americas at Deutsche Bank, said: “We are definitely seeing green shoots but the question is when does the harvest come?”

While M&A bankers await the return of deal volumes, activity in the equity capital markets has been boosted by the record volume of follow-ons in May after the US government released the results of its stress tests and forced banks to raise capital.

Rich Byrne, co-head of global capital markets at Deutsche Bank, said: “Re-equitisation is not done by any stretch and we will continue to see follow-on activity - although not at this feverish pace - as long as the markets remain open.”

Global follow-on volume is $269bn so far this year, 22% higher than last year-to-date, according to Dealogic. In contrast global initial public offering volumes are 90% lower then at this time last year, at just $6.3bn.

Byrne said: “Given the level of follow-on activity, it is only logical to assume that IPOs are not far behind. We are having more discussions with clients about IPOs than we have had in the past two years.”

http://www.wealth-bulletin.com/portfolio/content/1054490782/

 

When "German" bankers are optimistic just after intermediate-term bottoms in the market, be careful.

 

Put options have become cheap, lately...especially German DAX Options...