Aug. 22 (Bloomberg) - Europe’s failure to resolve its sovereign-debt crisis will force investment-banking chiefs in the region to consider shuttering entire businesses rather than rely on piecemeal job reductions to revive profit.
Dealmaking fees may drop 25 percent this year from 2009, when the crisis began in Greece, research firm Freeman & Co. estimates. European banks, including UBS AG and Barclays Plc, have cut about 172,000 positions since then, according to data compiled by Bloomberg, the same strategy they used after Lehman Brothers Holdings Inc. collapsed in 2008.
The game plan won’t work again as rising capital requirements and declining business alter the investment-banking landscape, investors and analysts say. New rules will reduce return on equity by 6 percentage points from about 14 percent in the first half of 2011, according to consulting firm Bain & Co. Banks that relied on record low interest rates and a flood of cheap funding from the European Central Bank to delay deciding which units to close will be compelled to make choices.
“Investment banks have to shrink and do more than cut a little bit here and there,” said Lutz Roehmeyer, who helps oversee 10 billion euros ($12.5 billion) at Landesbank Berlin Investment in Berlin. “There’s too much politics and too little economics going on. They want to keep certain businesses for as long as possible.”
Some firms are cutting deeper. UBS, Switzerland’s largest lender, is reducing its fixed-income operations to focus on wealth management because of stricter capital requirements imposed by regulators and a weak revenue outlook linked to the continuing debt crisis. Still, even for all the job cuts, most European investment banks haven’t made significant changes since the upheaval that accompanied the collapse of Lehman Brothers, said Joao Soares, a partner at Bain in London.