News reports do not bear good news for investment banks. The fees garnered from the banks reflect the absolute lowest quarter since 2011. Overall, the total fees garnered by the banks is $64.5 billion. On the surface, this would seem like an enormous sum. Investment banks do need to make money for those who put their funds into the banks.
Granted, it would be improper to assume an investment bank can guarantee outcomes. Like any other type of business, investment banks have to adjust to the ebbs and flows of the economy and the market. Zero interest rates are going to have an effect on how much money an investment bank’s bottom line. To reiterate, weak banks are never a good thing. So, lowered fees and revenues generated by these institutions should yield a slight cause of alarm in anyone who follows the market closely.
Where do these fees come from? Per Reuters, fees are charges on a variety of services including “mergers and acquisitions advisory” work and “capital markets” underwriting. Slow economic growth does not bode well for an investment bank picking up a number of clients and the low numbers in the third quarter reveal this.
The global economy landscape is not doing very well. China and Russia both have very weak economies. Europe is not doing tremendously well overall. In the United States, the number of people out of the workforce is rather high. All of these components do cause problems for the investment banking industry. Not everyone realizes just how global in operation investment banks are.
Ken Griffin is the CEO of Citadel and the investment firm holds investment capital estimated to be around $25 billion according to insidermonkey.com. The capital is invested all over the globe and shows the massive worldwide scope of investment banks and hedge funds. Griffin has experienced much success in his life as evidenced by the enormous growth of Citadel and the hedge funds he managed.
In time, the investment banking industry is sure to experience a rebound. When the markets make an eventual comeback, the need for the services of investment banks surely will increase. Until that time arrives, the banks have to rely on sound management to get through a difficult third quarter.