A wave of senior departures, lost market share, and a 20% drop in fees: A dismal year in investment banking at Bank of America
- Bank of America Merrill Lynch's investment banking woes continue to mount.
- While overall profits in the third-quarter soared 32% to $7.2 billion, investment banking fees in the firm's Global Banking division fell 20% to $643 million.
- It was the continuation of a dismal year for the unit, which has lost market share to its top rivals and dropped in the league tables.
- The bank has also experienced a wave of senior departures, with more managing director exits in investment banking since 2017 than any of its US competitors, according to a report.
- "This is about renewing our focus and reenergizing our teams," CFO Paul Donofrio said on Monday.
Investment banking was one of the few sore spots in an otherwise strong third-quarter earnings report for Bank of America Merrill Lynch.
While overall profits in the third-quarter soared 32% to $7.2 billion, investment banking fees in the firm's Global Banking division dropped 20% to $643 million.
It was the continuation of a dismal year for the unit, which for the first nine months of 2017 saw fees dip 20% from $2.7 billion to $2.1 billion. JPMorgan Chase and Citigroup reported earnings Friday and saw smaller investment banking declines of 1% and 8%, respectively.
In earnings calls on Monday with the media and analysts, Bank of America top executives said the division isn't living up to its potential.
"I know we can do better. I came from investment banking. I know they've built a great business, they have great bankers. We have one of the best platforms on the planet," CFO Paul Donofrio said. "This is about renewing our focus and reenergizing our teams."
While investment banking comprises a much smaller slice of Bank of America's business than its powerhouse consumer retail division - which reported $3.1 billion in profits in the quarter - the firm is a perennial a top-three player on global dealmaking league tables. It has slipped to fourth thus far in 2018, losing market share while rivals have made significant gains, according to data from Dealogic.
The firm's share in global investment banking fees dropped to 5.7% - down from 6% in 2016 and 2017 - while JPMorgan, Goldman Sachs and Morgan Stanley all posted gains.
The decline has happened amid a bumper year for mergers-and-acquisitions, with a record $3.1 trillion in announced deals in the first three quarters.
There's no single explanation for the investment banking drop-off, though many cite a too-conservative approach, which grew even more risk averse following the $292 million loss on a margin loan involving South African retailer Steinhoff International in the fourth quarter of 2017.
The firm's leaders noted the episodic nature of dealmaking, and the misfortune of having huge deals fall through, as Bank of America did with the potential $34 billion Comcast-21st Century Fox deal, which crumbled in July after Disney swooped in with a higher bid.
Some have questioned leadership at the top. Outgoing corporate and investment banking chief Christian Meissner, and his lieutenant and head of investment banking Diego De Giorgi, have taken heat for allegedly creating factions and alienating some bankers.
It's unclear whether that's to blame for senior bankers jumping ship, but Bank of America has experienced more churn than its US competitors in investment banking.
The bank lost 28 managing directors in investment banking to other banks in 2017 and the first half of 2018, according to data from a top Wall Street headhunting firm. Among those losses are Aaron Packles, co-head of US financial institutions banking, who left for Jefferies, and Bill Frauenhofer, head of global semiconductors banking, who left for Morgan Stanley.
By contrast, JPMorgan and Goldman Sachs lost 13 MDs during that span and Morgan Stanley lost 22, according to the report.
That tally doesn't include departures to the buy-side, corporations, or out of the industry, such as capital markets chief A.J. Murphy, who left in May to private-equity firm Silver Lake, or Anwar Zakkour, the global head of technology banking, who departed in January.
A Bank of America spokesman noted that the investment bank has hired 49 MDs since 2017.
Executives said Monday they were confident in their deal pipeline and that the business would rebound, a turnaround effort that will be spearheaded by Matthew Koder, the president of the firm's Asia-Pacific operations and Meissner's replacement.
"We know we can get our fair share out of that business," CEO Brian Moynihan said on the earnings call with analysts. "We can do better and we'll just keep pushing away at it."