Revenue at the world’s 12 largest investment banks grew by 28% in 2020, compared to 2019, and reached the highest levels in a decade, according to Coalition Greenwich’s Investment Banking Index.
Full-year revenue across the 12 banks hit $194.2bn, with fixed income, currencies and commodities (FICC) accounting for the largest share of that revenue at $98.3bn, followed by investment banking division (IBD) at $49.4bn and equities at $46.5bn. There was significant revenue growth across all three divisions, but FICC saw the biggest increase at 41% year-on-year, compared to 23% for IBD and 12% for equities.
FICC revenue increases were driven by heightened volatility and increased client activity, particularly during the first half of the year. Growth was seen across all product areas with the largest gains in macro (rates and foreign exchange), commodities and credit products. Interesting trends in these areas included substantial growth in portfolio trading within credit, supported by an increasing level of investment in bond exchange-traded funds.
Bond trading, in both investment grade and high-yield, was an important factor as heightened activity was supported by central bank interventions, significant primary issuance and spread movements. In commodities, high revenues were driven by metals and oil trading, with revenue from precious metal trading multiplying as investors sought safe havens from market volatility and pandemic uncertainty.
For IBD, revenues reached decade level highs due to strong equity capital markets (ECM) and bond issuances, although these highs were partially offset by weaker merger and acquisition (M&A) and loan syndication activity. M&A performance did begin to pick up in the final quarter of the year, buoyed by positive vaccine news. ECM performance was particularly strong in US markets — including, notably, growing volumes of special acquisition companies. Investment-grade bond activity saw a significant annual increase, as corporates initially raised Covid-19-related liquidity, while taking advantage of the low interest rate environment.
Increased equities revenues were a result of strong performances in derivatives and cash products throughout the year. Equity derivative volumes in particular were at their highest level for a decade. Cash equities also enjoyed a consistently strong performance, maintaining momentum and volumes, especially in the Americas and Asia-Pacific. Prime services experienced a marginal loss in the first half of the year, although performance improved in the second half.
Front-office headcount at investment banks remained largely stable, declining from 49,400 to 48,700, largely driven by a 4% decrease in front-office equities staff, particularly within structured equity derivatives.
Investment banking operating margins jumped by 15 percentage points, increasing for the first time in five years. Significantly elevated revenue, combined with only moderate increases in bonus spend, and decreases in travel and marketing spending, largely accounted for this.
