Investment banks face the prospect of another disappointing year as companies put off dealmaking, depressing fees for the first quarter of 2012 to their lowest level for three years.

Fees from mergers and acquisitions, equity and debt capital markets totalled $15.9bn, down 24 per cent year-on-year, according to data provider Thomson Reuters.

With companies spooked by the uncertainty triggered by the eurozone debt crisis, five successive quarters of falling M&A volumes have depressed fees. Global M&A volumes dropped to $393.2bn, down 14.6 per cent on the fourth quarter of 2011, according to Mergermarket. The collapse in fees has set up expectations among some senior executives of a shake-up in the industry, with leading banks grabbing greater market share.

Some bankers argue that a revival in dealmaking is in the works, as volatility declines and equity markets rise. “There is always a time-lag with M&A from when leading indicators become positive,” said Wilhelm Schulz, head of Emea M&A at Citigroup. “All things being equal there will be a recovery in deal activity. It is already materialising in the intensity of strategic dialogue with corporates and solid pipeline growth.”

A bright spot for banks has been a revival in debt sales, which in the first quarter overtook M&A as a driver of fees for the first time since early 2009, highlighting improving funding conditions for companies.

Debt capital markets was the only part of investment banking activity that saw fees rise in the quarter, accounting for a third of the total fee pool and the highest proportion globally since 2003, up 81 per cent on the fourth quarter. Global M&A fees fell to their lowest levels since the second quarter of 2009.

“There are a lot of encouraging trends,” said Jes Staley, head of JPMorgan’s investment bank, “even though two important markets remain fairly quiet. Equity markets, particularly outside the US, are still weak, and activity in the M&A market is still somewhat tepid.”

While the US saw the biggest drop in deal volumes, Europe was the only region to show an increase in activity on the fourth quarter, helped by commodities trader Glencore’s $53.5bn acquisition of shares it does not own in miner Xstrata. But with parts of the eurozone in recession, some bankers are more pessimistic about a recovery in dealmaking. “You will need to see a lot more confidence from US and Asian companies to invest in Europe,” said Philip Noblet, co-head of Emea M&A at Bank of America Merrill Lynch. “You are already seeing signs of it but the floodgates aren’t opening.”

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