By Saeed Azhar and Sinéad Carew

(Reuters) – After a pandemic of central bank and government spending, a lack of IPOs and a fall in stock prices have hampered the prospects for global investment banks to generate revenue.

This year’s volatile financial markets have been affected by Russia’s invasion of Ukraine, and significant tightening in monetary policy. Although this can increase trading volume, it also slows initial public offerings (IPOs), and special purpose acquisition deals (SPACs)

Dealogic data showed that global investment banking net revenue declined to $35.6 billion from $57.4 million a year ago. This is nearly 38% less than the $57.4 trillion reported a year prior. Data from Dealogic showed that the total global investment banking net revenue in 2021 was record-breaking $132 billion.

Stephen Biggar, Argus Research said that “IPOs and SPACs have become scarce” The second quarter will be another disappointing quarter in investment banking.

Biggar indicated that banks would make some money on equity and fixed-income, but the bulk of this will be used to trade currency and commodities (FICC), which is stronger than usual last year. However, Biggar claimed, “Overall, the quarter is expected to be much less.”

In recent weeks, banks have spoken out about how shine is coming from investment banking or parts thereof.

Credit Suisse warned Wednesday of the adverse market conditions, lower levels of capital market issuance, and wider credit spreads which have affected its investment banking business’ financial performance.

Credit Suisse’s warning of a second-quarter drop was not without problems. It suffered huge losses from failed investments in 2021 and the effects of numerous legal cases.

HEADWINDS

Mike Mayo, senior bank analyst, stated, “This is Wall Street headwinds. Main Street tailwinds.” Wells Fargo (NYSE:). He suggested that the trading volume should grow year on year, while equity underwriting was under threat.

“It should be noted that the European banks, as a whole, trail U.S. banks. This is a multi-year story that just continues to drag on longer and longer.“

JPMorgan Chase & Co (NYSE:) said at its May investor day that it expected investment banking revenues to be down in 2022, albeit after an exceptionally strong 2021.

Meanwhile, Morgan Stanley Ted Pick, (NYSE:), stated at a conference that the investment banking calendar had been “extremely silent” while the underwriting calendar was slow. However, clients were still hedging their risk and the markets business was performing well.

This is not the case across all segments. While broader M&A volumes are lower, overall activity has remained healthy and the pipeline for deals still looks relatively solid, according to investment bankers.

The 2022 earnings of five major U.S. banks: Morgan Stanley (NYSE:), Goldman Sachs and JPMorgan. Citigroup According to Refinitiv data, Wall Street analysts anticipate a drop of 22.9% in Bank of America (NYSE) and (NYSE:). Analysts at Wall Street expect an expected decline of 27.4% for the second quarter. In July, earnings were reported by U.S. banks.

The leaders of U.S. bank executives warned this month of concerns about the economy’s health. Jamie Dimon of JPMorgan spoke out in favor of an impending “hurricane”.”.

John Waldron was President and Chief Operating officer of Goldman Sachs. He said, however, at an earlier conference in June that the “confluence” of several shocks to the system is unprecedented.

Although financial service recruiters claim they don’t see any hiring freezes at the moment, others pointed out a slowdown in trends for hiring from 2021’s high levels.

It isn’t as strong as last year. According to a New York-based recruiter, the market is “tepid”.

Christopher Wolfe is the head of North American banks at Fitch Ratings. He said that capital markets would be most vulnerable to slowing down in the economy.

“In terms of a market downturn, investment banking and asset management segments would be most exposed,” Wolfe said.

Fee revenue in the second quarter will be hurt by longer closing times for mergers and acquisitions according to Michael Brown, analyst at Keefe, Bruyette & Woods, although he said the pace of merger announcements is improving.

Brown also called equity capital market activities such as IPOs and debt capital markets deals “dormant.”

Asia’s slowdown in deals has also been due to China’s regulatory crackdowns and economic slowdown. In Hong Kong alone, the market value for IPOs fell by 90% in this year compared to a one-year period.

If the market remains volatile, and deal flow is slow, then job cuts are inevitable. A lot of banks in Hong Kong had hired people in the first year,” said a Hong Kong capital markets banker who could not be identified because he wasn’t allowed to discuss media.