The Wrath of Coronavirus
We are amidst a global pandemic that has disrupted the functioning of all major industries across the globe. It has established that even the 21st-century economy is not immune to a pandemic. Scientist around the world has failed to beat the virus even with the most sophisticated and progressive technology available. It sometimes makes you wonder if our collective achievements as a society are achievements at all.
Businesses of all scale and nature have been put to halt in the wake of the deadly Coronavirus that has taken thousands of lives. Human resource is the most important resource for any organization no matter what level of technical sophistication you have achieved in your operations. The threat to humanity is real and this is hampering organizations to a great extent.
Investment banking in times of COVID19
The investment banking segment is among the industries that are heavily impacted by this lethal outbreak. The finance and investment industry is known for being volatile. This has been further fuelled by the Coronavirus outbreak to another level. The clouds of recession are looming all over in this time of uncertainty.
US banking giants like JP Morgan & Chase have prepared a reserve cover net for approximately $7 billion to protect it from potential loan defaults and bad debts in the coming months. This has plunged its profit by more than two-thirds in the first quarter.
The $7 billion reserves included $4.5 billion exclusively for potential consumer loan defaults on account of increasing unemployment rates in the US. The bank’s net income fell to $2.87 billion, in the quarter ended March 31. In addition to this, players like Wells Fargo also reported a reduction in their first quarter’s profitability.
As per research reports, the collective investment bank revenue fell by approximately 33% in the first quarter of 2020. The current revenue figures in absolute terms for the first quarter stands at $222 million. It is estimated to be the lowest since the year 2016. A downtrend in the Mergers and Acquisitions advisory fee was also reported.
A fall of approximately 66% to $35.5 million compared with the last year’s figures. Debt capital market underwriting fees in India fell by almost 22% from the previous year. In addition to this plunge, cross-border Mergers and Acquisitions also showed a downtrend as both inbound and outbound activities were hampered. The inbound M&A activity in India fell by almost 30% from the previous year and stood at $6 billion. The outbound M&A activities in India also witnessed a dramatic fall; it fell by almost 70% compared with the previous year’s figures.
The energy and power sector in India contributed to a major chunk of deal-making activities. Bad debts collateral auction also witnessed a fall, only one-third of all the assets put up for sale attracted bids from buyers amid this global pandemic. The approximate worth of these collaterals put up for sale by Banks and NBFCs amounted to approximately 15000 crores, these offers drew bids for less than Rs. 5000 crore
Talking about Asia Pacific (excluding Japan), the collective fees generated from Investment banking activities like Debt Capital Market (DCM), Mergers and Acquisitions (M&A), Equity Capital Market (ECM) witness a major downtrend. It fell by almost 9% when compared with the previous year’s stats.
The revenue from investment banking industries has been dramatically hampered amidst this global pandemic. A major downtrend in Mergers & Acquisition activities was witnessed across the Asia Pacific (excluding Japan) compared with the previous year’s stats. A major portion of profits has been set aside by Investment Banks to tackle the bad-debt challenge in the upcoming months.
Also Read: https://blog.imarticus.org/how-corona-virus-may-impact-global-investment-bank-revenues-in-2020/