Investment-banking revenues had their worst first half since 2006, according to a report last week by Coalition, a London-based research firm. The weakest performance is in bond, currency and commodity trading, which accounts for 42% of revenue, down from almost two-thirds before the financial crisis. When bankers complain about regulation tying them down, this is what they mean. Shed a tear?
Because revenues have fallen faster than expenses, the industry’s return on capital has dropped to 6.7%. Its cost of capital, however, is in the 10% to 12% neighborhood.
“The long-term outlook for investors is changing and requires a more conservative approach,” state Comptroller Thomas DiNapoli said in a statement.
If big buyers of investments are dialing down expectations, their dealers will have little choice but to follow.