November 30, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Investment Bank Layoffs Hit Europe

U.S. bank Citi is the latest investment bank to axe staff in Europe.

Joining the likes of Deutsche Bank and Credit Suisse, Reuters reported earlier this week, citing inside sources, that Citi is set to lay off up to fifty employees across Europe, the Middle East and Africa (EMEA).

In fact, although the wider Citigroup has been buoyed by rising interest rates this year, European operations — from its EMEA headquarters in London to offices in Luxembourg, Switzerland and Dublin — will have been especially hit by weak performance in its investment banking and institutional client services business.

In its Q3 results, for example, the U.S. financial institution reported that banking revenues in the institutional clients group (ICG) were down by 50% year-over-year (YoY).

This was driven by lower revenues in investment banking and corporate lending, as well as a 64% decrease in investment banking revenues, which led to a 5% drop in total income at Citi’s ICG compared to the same quarter last year.

Without a retail credit business to offset declining institutional demand for services, similar to what Citi operates in North America, the bank’s European operations are at the mercy of the volatile stock market.

And Citi is not alone in its decision to lay off staff as deal making stalls and markets stagnate.

In October, Deutsche Bank was reported to have let go of “dozens” of bankers based out of its London office. And last month, reports circulated that embattled investment bank Credit Suisse had begun a round of layoffs likely to affect up to 15% of its London-based equity capital markets team.

In the case of Credit Suisse, the decision to slim down its investment bank is part of a wider strategic pivot toward its wealth management business following a string of scandals in recent years.

Meanwhile, Barclays, Lloyds and UBS have all made cuts to their investment banking teams this year, while equivalent moves from other major U.S. banks will also affect European headcounts.

Dwindling Deals Hit Headcounts

So, what’s behind all these job cuts?

In short, 2022 has been a bad year for deal making. Across its various subdivisions, investment banking essentially boils down to enabling large corporate transactions. This means that when businesses do less business, banks make less money.

By June this year, bankers had already found themselves short on work. After the average value of initial public offerings (IPOs) in the U.S. and Europe plunged by 90% in the first half of the year, companies put flotations on hold, while those that went public did so in a difficult market that has reduced bankers’ fees.

Throughout 2022, the London Stock Exchange (LSE) hasn’t listed a single new company worth over $1 billion and has raised only 1.5 billion pounds ($1.8 billion) via IPOs this year. This compares to the 126 IPOs the U.K.-based exchange recorded last year, adding about 16.9 billion pounds to the LSE’s market cap.

Besides London’s IPO flop, mergers and acquisitions (M&A) haven’t fared much better. Like the IPO market, M&A deal-making broke new heights in 2021 but has experienced a long hangover this year.

As the deal drought continues, banks will not be the only ones forced to lay off staff. So far, various brokers, financial lawyers and advisors have also found themselves out of a job as the professions that grease the wheels of European markets remain significantly affected by declining activity.

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