Global investment banking revenue will recover from a fall of about 15 per cent in the first five months of the year, according to the head of capital markets origination at Citigroup.
Tyler Dickson, who oversees debt and equity capital markets for one of the world’s top three investment banks, said the fall in revenues for 2018 compared with a year earlier would end up being “closer to zero” than the 15 per cent fall in the year to date.
He said that conditions last year were “near perfect”, given geopolitical risks, interest rate rises, trade wars and inflation, but this year the backdrop was still “pretty darn good”.
“We would expect that gap (between 2017 and 2018) to close,” he added, referencing the 15 per cent fall in investment banking revenue year to date as charted by industry monitor Dealogic.
Mr Dickson said that Citi, which is considering applying for a full banking licence in Saudi Arabia and has done a number of recent deals for the kingdom, was not concerned about the succession of delays to the flagship $2tn flotation of oil company Saudi Aramco.
“Those who take time on privatisation campaigns in order to do them right do better than those who rush,” he said. “We give the Saudi authorities credit for not going too fast.”
Investment banking, which covers debt and equity advisory as well as mergers and acquisitions, was one of the weaker points in banks’ first-quarter results.
Dollar-denominated investment banking revenues came in 4 per cent lower than a year earlier across five big US banks, as well as Deutsche Bank, UBS and Barclays, according to data from analysts at Autonomous. Falls for some banks were much worse: Deutsche Bank’s investment banking revenues were down 27 per cent, Bank of America’s were down 13 per cent, Citi and JPMorgan were both down 10 per cent.
Mr Dickson said that 2017 was “the most favourable (year) from a market perspective” that he had seen in his close to three decades at Citi, as investors piled into bonds to equities across the world.
Citi lead Dealogic’s global IPO league table based on both market share and number of deals for the first time since 2002, advising on big deals including the €1.6bn IPO of Deutsche’s DWS asset management arm. Citi also came second globally for debt capital markets revenues last year.
In 2018, Mr Dickson said, the US market has been comparatively slower: “I’ve seen less M&A activity, less financing activity, off a very robust baseline.”
More broadly, he said that headwinds included the “risk to global trade”, “protectionism across some very large markets”, greater sensitivity to geopolitical tensions and interest rate rises, which could make some financing activity less attractive.
“2018 is still a constructive market,” Mr Dickson said, adding that Citi saw a “strong” pipeline of activity. “The first quarter was slower than we anticipated, the transactions didn’t disappear, they just got pushed out a bit.”
Despite the US slowdown, 2018 has been something of a watershed year for global M&A, with the $1tn deal mark hit by March 20, the fastest it has ever been reached. Since then, Vodafone has agreed an €18.4bn takeover of assets from Liberty Global, Japanese drugmaker Takeda has won acceptance of its £46bn offer for Shire, and J Sainsbury and Asda have agreed a deal to create Britain’s biggest grocer by market share.
“There’s a recognition by a lot of corporates that … they need to either address demand by investing in their business either organically or through M&A,” said Mr Dickson. “Activist trends continue to create pressure, that will also be a catalyst for M&A activity.”
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