The 2018 drought isn't just restricted to Northern Europe. Today's second quarter results from Bank of America suggest the U.S. bank's M&A bankers saw very little rain in the three months to June, too. While rivals' M&A revenues increased, BofA's withered on the vine.
The chart below reflects BofA's M&A aridity. While J.P. Morgan and Citi saw M&A revenues rise year-on-year in the second quarter of 2018, at BofA they fell - dramatically.
The collapse in BofA's M&A revenues in the second quarter follows an earlier year-on-year fall of 30% in the first quarter. As a result, BofA's M&A revenues are just $545m for the whole of the first half of 2018. Last year, they were $465m in the second quarter alone.
What went wrong? At the time of its first quarter results, BofA blamed particularly strong comparables in 2017. Today, again, it said last year's second quarter was a "record," implying that some sort of drop off will be inevitable.
Even so, there are indications that something's up. And it seems to be up in America. Figures from Dealogic show that BofA ranked eighth for U.S. M&A revenues in the first half of 2018, down from third in 2017. Its M&A revenues in the U.S. market were just $228m - less than a third of market leader Goldman Sachs. However you look at it, it's a fall from grace: BofA's M&A business has traditionally ranked between third and fifth in the U.S. market.
BofA's sudden demise as a U.S. advisory house may be attributed to reasons highlighted by Bloomberg in June. At the time, the newswire said the U.S. bank was suffering an exodus of top M&A bankers: at least 14 managing directors had left, of whom 10 were in the U.S. The exits were reportedly the result of internal squabbling and an excruciating approach to risk management as BofA's risk managers scrutinized potential deals from every conceivable angle and approved them slowly - if at all. At the same time, BofA is said to be less willing than before to extend loans to help finance M&A deals after losing $292m on a loan to the Steinhoff Corporation - even as rivals like J.P. Morgan have been helping to finance massive deals like Bayer's $57bn purchase of Monsanto.
BofA would undoubtedly argue that it's not all bad. Senior bankers told Bloomberg in June that the focus is now on, "deepening long-term relationships" and that things should bounce back now that the internal Steinhoff investigation is over. Since the start of this year, BofA says it's hired at least 15 senior bankers. At the time of its first quarter results, the bank said it was busy recruiting, "additional client-facing professionals to further strengthen local market coverage".
Also at the time of its first quarter results, however, BofA also proclaimed that its investment banking pipeline was strong. With retrospect, this looks like very wishful thinking. Bank of America's investment banking business has new co-heads in the form of Elif Bilgi Zapparoli and Sarang Gadkari, appointed in May 2018. They need to hope that the first two quarters of this year were just a blip. If not, they may want to reconsider the bank's advisory strategy in the Americas and to hire in some decent rainmakers to replace all those who've left.
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