Economic expansion in 2019 provided solid growth for investment banks, but the COVID-19 epidemic suggests contraction ahead. The world economic situation in the early part of this year remains volatile, given the outbreak of the COVID-19 virus, an election looming in the United States and world central banks lowering interest rates. However, last year saw some progress for the banking community. The economic boom in the US continued; Brexit became more certain, and some trade wars settled down, with deals or tentative deals in place.
US banks are ahead on multiple measures compared to their European counterparts. Aggressive policy interventions and forceful regulations helped propel US banks to health after the financial crisis. In the past year, favorable GDP growth, tax cuts and rising rates further bolstered the state of the industry.
New competition is emerging for large banks, as fintechs and so-called Big Tech companies attract investment and clients, according to EY’s Banking in the New Decade report. These companies benefit from not having legacy systems to update, allowing them more freedom to invest in the latest technology. The report says these competitors are driving banks to spend significantly on digital transformation.
Europe’s banks, notes the report, are bolstered by higher capital ratios and a significant decline in nonperforming loans. On the other hand, trade tensions are crimping growth and the EU economy remains weak. Germany and the UK barely escaped recession. “Monetary easing in the eurozone will continue to lower margins and hinder revenues,” EY notes, “while the potential for negative rates means deposit margins—a significant driver of industry revenues before the global financial crisis—are now a drag on the bottom lines of the banks.” Tan, DBS: We seek to guide our clients’ strategic direction, alert them to opportunities for debt and equity fund-raising and connect
them across borders. 2019 saw a decline in revenue for much of the developed economies, while some developing regions saw an uptick. Globally, revenue was down for the industry by 3.6% year-over-year to $76.8 billion in 2019, from $79.7 billion the year prior (which itself was a decline from 2017), according to Dealogic.
In North America, investment-banking revenue declined 4% in 2018-2019 to $42.7 billion; and in Europe, revenue was down a staggering 15% to $16.4 billion. Japan and Australasia also saw revenue declines of 13%, or $2.9 billion; and 11%, or $1.7 billion, respectively. The regions that saw growth this past year were Latin […]
