UK Investment Banks Losing on Own Turf

The troubling news continues for the United Kingdom investment banking community this week as Dealogic released its latest industry statistics. Within their own market, UK institutions have rapidly fallen in terms of market share over the past few years, accounting for only 27 percent of the all British investment banking fee revenue in 2013 up to May 22. This is down from 35 percent in the previous year.

In terms of total revenue, the smaller share accounts for only $372 million in fees from debt and equity capital markets as well as mergers and acquisitions advisory services. As regulatory and compliance costs begin to mount for the industry, this is far from welcome news. In the same period last year, this revenue came in much higher, at $413 million.

Some British Institutions Exiting Investment Banking Entirely

Industry insiders are pointing to the exit of some of Britain’s biggest investment banking players as the root cause of the collapse in fee revenue. The Royal Bank of Scotland, a storied institution that prior to the financial crisis was an investment banking leader in the region, is one bank that is exiting the market entirely. Vivek Raja, an analyst at Oriel Securities, told Financial News the decline “could almost entirely be explained by RBS pulling out of the market. It’s a virtual closure of their investment banking business.”

International Banks Swoop in to Capture Market Share

While the exit of some of local players may be a leading factor in declining revenues for British banks, it may not tell the whole story. Increasing competition is also contributing to the trend with American, German and Swiss banks eagerly snapping up whatever market share they can from departing institutions. American institutions accounted for 38.2 percent of British investment banking revenue up to May 22nd, while JP Morgan alone accounted for 9.6 percent of total fees. The German and Swiss banks have captured 7 percent and 12 percent respectively in the same period, led by the likes of Deutsche Bank, UBS and Credit Suisse.

Investment Banks Using Less London Office Space

One indicator of the decline of domestic institutions in the United Kingdom is their usage of high end London office space. And this indicator isn’t looking good for the industry. According to a CBRE industry survey reported by the Financial Times, three quarters of banks in London were looking to cut the amount of office space they use today. This likely represents a twofold trend, the decline in British bank dominance previously discussed as well as a move to reduce costs ahead of regulatory reforms.

“The pressure on the banks in recent years has undoubtedly had an impact on their real estate requirements and recovery in the sector is likely to be slow in an environment of tighter regulation,” Frances Warner-Lacey, Senior Director at CBRE advisory, told the Financial Times.

Regardless of the specific cause of the reduction in office space, this news along with the declining revenues, won’t be welcome to those seeking investment banking opportunities in London.

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