The year in investment banking: 2022

December 29, 2022 12:00 PM

For many banks, investment banking divisions offer both the prestige of mergers and acquisitions and the steady fees that result from advising on and underwriting deals. But the environment for deals has gotten less favorable this year: the Fed raised interest rates sharply after a long period of near-zero rates, the stock market fell, and the Biden administration signaled its regulators would take a harder look at many proposed transactions.

Scroll through for a review of how investment banking fared this year.

Russell Goldsmith: How banking has changed

City National Bank Chief Executive Officer Russell Goldsmith Interview

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As Russell Goldsmith, longtime CEO and then chairman of City National Bank, now an RBC unit, prepared to retire from the bank after 43 years, he sat for an exit interview. Here's what the veteran executive had to say about the changes over time in banking, and in the bank his family helped found and then ran for three generations.
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Credit unions bought more banks than ever

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One investment-banking trend sweeping the country: credit unions buying community banks. Despite loud opposition from banking trade groups, these deals are happening wherever regulators will approve them, with one lawyer saying he spends all his time on credit union-bank transactions.

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The bank M&A slowdown

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In the second quarter of 2022, bank M&A was slowing, with banks concerned about their ability to get regulators to greenlight deals. The Biden Administration had voiced its opposition to banks merging into bigger institutions, which made dealmakers wary of spending the money, time and public relations effort required to push through a transaction. Would banks still seek to grow through acquisitions, or would they turn their attention to other avenues?

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Third quarter shows continued decline in M&A activity

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As the Biden administration continues to slow-walk bank mergers, and interest rates continue rising, the merger boom that accompanied the bull market of the last few years has decelerated, investment bankers warn. That could have a doubled effect on banks: fewer mergers between banks, or acquisitions of banks, would mean that this avenue of growth was less available, and it would also depress fees from investment banking units.

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JPMorgan might lay off staff as investment banking revenue falls

Michael Nagle/Bloomberg

JPMorgan Chase could lay off staff in a bid to counter falling investment banking revenue, the country's biggest bank by assets said in September. Chief Operating Officer Daniel Pinto told an investor conference that the bank was considering cutting headcount as well as reducing bonuses.

"Last year, we had to add a lot of bodies just to execute the huge amount of volume we were executing," Pinto said. Still, he said it is important to exercise caution when cutting bankers during a downturn "because you will hurt the possibility of growth going forward."

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Falling mergers drive down Bank of America's second-quarter earnings

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As Bank of America detailed its second quarter results for 2022, it noted declines in investment banking revenue as mergers fell, but expected that Federal Reserve rate hikes would soon give it more interest income. The bank told investors it was in a much better position than it had been during the financial crisis, with considerably lower exposure to credit cards and home equity and construction loans and with a much lower percentage of nonperforming loans overall.

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For Huntington, M&A deals come with an advantage

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One bank that saw good news from M&A deals this year was Huntington Bancshares, which saw its net income rise in the third quarter of 2022 because of its acquisitions of TCF Financial and Capstone Partners. "Obviously, this rate environment is helping the industry and us," Chairman and CEO Steve Steinour told American Banker in an interview at the time. "But there's underlying core performance that is very strong. Our lending is strong, both consumer and business."

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Investment banking slides for KeyCorp in second quarter

Ty Wright/Bloomberg

In 2021, KeyCorp hit a record level of income from investment banking. That was due to the strong market for deals that accompanied the stock market's rise and ultra-low interest rates. But by the second quarter of this year, those fees had fallen by nearly one-third from a year earlier. But Chairman and CEO Chris Gorman wasn't deterred.

"We're playing the long game, and this is a cyclical business," Gorman said in an interview with American Banker after the earnings call. "We'll continue to invest in it. We're not concerned about one quarter or another."

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Bank mergers may not ever get approved: PNC's Demchak

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What is the point of signing agreements to buy banks when regulators won't approve the deals? PNC Financial Services Group thinks there may not be one.

Given a spate of approval delays this year in the wake of President Biden's call for elevated scrutiny of mergers and acquisitions, PNC Chairman, President and CEO William Demchak said in early December that his company would approach any bank M&A opportunity, large or small, with a healthy dose of skepticism.

"I think there's a bunch of financially attractive deals that everybody would love. I just don't think they'll ever get approved," Demchak said during remarks at a Goldman Sachs financial services conference.

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