From M&A transactions services to restructuring, Coronavirus pandemic may bring a paradigm shift in the core revenue-generating activity of a number of Investment Banks (IBs).

2019 was a slow year for Investment Banks with only 11 mega deals executed in 2019 as compared to 25 in 2018. The slowdown in deals impacted the revenues of all the investment banks across the world. Goldman Sachs and JP Morgan that together control 16.4% market share also observed a fall in their equity revenues. Furthermore, the lockdowns across countries due to coronavirus has paused and delayed a number of M&A deals as companies brace for the upcoming recession confirmed by IMF.

It is observed that all investment banks are now considering focusing on alternate streams such as “restructuring” in order to maintain steady revenue even though banks can enjoy higher fees on M&A transactions.

The airline industry is under a huge crisis with flights shut down. Their costs for maintaining the grounded carriers are high while revenues have been majorly impacted. Airlines are hence considering restructuring ahead of the upcoming recession. For example, Virgin Atlantic Airways is seeking help from Rothschild for its carriers.

The oil price war between Saudi Arabia and Russia has pulled the oil prices as low as $20 per barrel. Due to low prices and low oil demand, all across the world, oil stocks of oil-exporting countries are struggling to gain. Some of the debt-laden US Shell companies consider restructuring to avoid facing bankruptcy if the oil price falls further between $10-$20 per barrel range. For example, Valaris PLS is working with Goldman Sachs and PJT to help fix its balance sheet.

Hence, there seems to be a paradigm shift among the investment banks’ approach towards revenue generation. The banks that used to focus on executing mega deals are also shifting their focus to restructuring. While normal transactions may not execute this year, distressed M&A deals may be executed post the pandemic. However, in order to maintain steady revenues, Investment Banks may not be able to rely solely on transactions. Diversifying their services into alternate streams like restructuring may help survive the upcoming recession.

MSc Finance graduate from the London School of Economics and Political Science (LSE)
Avatar for Ria Vaghela

Ria V Vaghela is an M&A Executive at RSM UK and an MSc Finance graduate from the London School of Economics and Political Science (LSE). She has worked at Jefferies, Dial Partners and 7i Capital prior to RSM UK gaining an experience of about 1.5 years. She has also worked as an Editor and Content Writer for The Representative Media. Apart from finance, she is interested in reading books on psychology and economics and also likes to paint and play lawn tennis

Leave a Reply

Your email address will not be published. Required fields are marked *