Investment banking turnover has declined significantly in the first quarter, Jens Haas, head of Investment Banking at Credit Suisse in Switzerland, said in an interview with finews.com. It's not only the war in Ukraine that is to blame.

Jens Haas, after five weeks of war in Ukraine, do you experience a slowdown in investment banking activity?

Globally, sales in the first quarter were down significantly year-on-year. This is among the most evident in the Americas, which saw a reduction of around 40 percent compared to the first quarter of 2021. In Europe and Asia, turnover was down by around 30 percent.

However, we must not forget that last year was a record year in investment banking. Turnover in the first quarter of 2022 was slightly above the level of 2019.

So how are things looking in the particular segments of the business?

In terms of individual product groups, we have seen the sharpest decline in Equity Capital Markets. As there continues to be strong volatility in the markets and certain sectors, such as technology, stocks have corrected significantly and this is having a corresponding impact on activity levels.

«In Switzerland, activity has tended to slow down»

In Mergers & Acquisitions, the downturn has been least pronounced so far. This can be explained by the fact that these transactions require a longer lead time. Therefore, a downturn in this segment may only become visible in the medium term.

What can you say about developments in Switzerland?

In Switzerland, activity has also tended to slow down. But here, too, we already had expected a certain slowdown after the strong previous year.

With regard to IPOs, it should be noted that this area typically only gathers pace in the second quarter when the financial figures for the previous year are available.

So how are market participants reacting to the uncertain situation?

The mood is comparatively robust, but of course, no one can completely escape current events and their impact on the markets. Overall, Europe is down 30 percent in the first quarter, but M&A is down only 3 percent – so it's almost unchanged.

How is it that M&A has remained so strong?

In terms of M&A, you have to take into account that the activities completed in the first quarter had already been announced last year. This means that they were initiated before the current crisis.

How would you describe the mood among companies in general?

Basically, companies have become more cautious. But the reaction of companies always depends on their specific environment. In other words, how relevant inflation is for them, how big the economic impact of the war in Ukraine is, and how strongly rising energy prices are affecting their business model. And, of course, the importance of supply chain disruptions.

«We are not at that point yet»

All of these issues have varying degrees of importance for companies and thus influence their individual response, both in the short, medium- to long-term.

It's probably a bit early to venture an outlook for the year as a whole, but how do you see the further development?

We have already assumed in our planning that this year will see a certain normalization. That's why we shouldn't overestimate the current (negative) figures. After the strongly above-average 2021, anything other than a lower volume would be a surprise. If the level of 2019 or even 2020 is reached, it will have been a good year.

What scenarios are you working with?

At this point in time, the mood in the capital market can be best described by the adjective ‹postponed› rather than ‹canceled›. However, if the current problems persist and have a sustained impact on corporate earnings, there is an increased risk that planned deals will be canceled rather than merely postponed over the short term. However, we are not at that point yet.

«The situation is different if the war continues for a long time, combined with increased energy costs»

Put simply, I see two scenarios for the markets at the moment. In the optimistic case, the economic impact of the war in Ukraine remains limited. In this case, we would probably see a comparatively quick «snapback» in transaction activity.

The situation is different if the war continues for a long time, combined with permanently increased energy costs, which have an additional impact on the already increased inflation levels. In that case, the markets would also be affected over the longer term.

Do you think that in some circumstances the longer-term macroeconomic developments could have a stronger impact than the war in Ukraine?

If we start from the optimistic scenario, it may indeed be that the impact of supply chain disruptions, rising prices and monetary policy will be more relevant for the economy as a whole than the war in Ukraine. It also seems clear that the issues of energy supply are long-term in nature and, in any case, cannot be resolved that quickly.

Do you see any differences within the markets?

The impact seems to be weaker the further away from the war events the respective markets are. But after five weeks, of course, it's too early to draw any conclusions.

«State expenditure in Europe is likely to rise sharply»

It's entirely possible that the U.S. will recover more quickly than Europe. They are ultimately less dependent on Russia for their energy supplies than Europe. In addition, state expenditure in Europe is likely to rise more sharply because there is a great need to catch up in the area of defense and because the European countries want to become more independent in terms of energy supply. This, of course, increases the overall government spending ratio.

Jens Haas has been with Credit Suisse for more than 21 years. He is Co-Head EMEA Coverage, Head of Investment Banking Switzerland and a member of the Executive Board of Credit Suisse (Switzerland). He holds a master's degree in International Accounting and Finance from the London School of Economics and Political Science and a bachelor's degree in European Business Administration from ESB Business School in Reutlingen.