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Here’s a depressing little table - investment banking fees from M&A and the like, together with market share, for the 15 largest firms.

Daniel Davies and his wholesale banks research team at Credit Suisse, reckon the global investment banking fee pool is down about 27 per cent so far this year.

While overall trading revenues have been helped by some brisk business in currency and interest rate-related business areas, advisory work has been very thin on the ground - unless you are advising on rights issues, that is.

Davies notes that some banks have been filling this gap with revenue from interest rate and forex trading, although there was substantial variance between firms. He puts this down to the so-called “Trichet trade.”

The second quarter of 2007 saw a highly unusual trading environment in euro area interest rate products, with the yield curve inverting between 2 and 10 years, and a sharp jump upwards in interest rate expectations on 5 June associated with a major policy speech by Jean-Claude Trichet. As shown in Figure 2, the volatility associated with the ‘Trichet trade’ could potentially have created significant winners and losers.

Although the interest rates desks of European banks are not usually considered to be proprietary trading operations, they usually carry significant inventory positions as part of their normal business. And when there are sharp price movements - as seen during Q2 - it is possible for a rates desk to make or lose money in a short period of time.

The upshot here is that such revenue does not look very sustainable.

Time to get back to praying for a return of M&A.

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