A Golden Goose For Investment Bankers Has Stopped Laying Eggs

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Private-equity firms are doing fewer deals and that spells bad news for investment banks.

Fees paid by the funds have historically made up a big chunk of investment-banking revenue. At this point last year they accounted for nearly one-quarter of the total.

But there's been a sharp drop-off this year as a combination of overstretched stock markets and tightening regulations dampen activity. Revenues from private-equity firms are down by one-third in 2015, according to data provider Dealogic.

There are three key things that private-equity firms pay the investment banks for: acquisitions, loans, and stock and bond sales. Fees are down on all three fronts — to the lowest level since right after the financial crisis.

Mergers and acquisitions fees are down 17% from last year, Dealogic's data show. With stock market valuations high, many of private equity's biggest names are holding back on buyouts out of fearing of paying too much.

The big banks also can't lend to the PE industry like they once did, after the Office of the Comptroller of the Currency put in restrictions on leveraged-buyout financing. Less regulated banks, like Jefferies, have helped fill some of the void because they can lend to private-equity firms with fewer restrictions than the big banks.

Meanwhile, after a burst of activity in late 2013 and early 2014, there have been fewer IPOs and stock sales by private-equity-backed companies this year. Fees from those kinds of deals are down 32%.

Private equity could yet channel more money back into banks. PE firms have some sizable IPOs lined up for later this year, which will be a boon for underwriters.

Dealogic's data has JPMorgan leading by "wallet share" of private-equity revenue so far this year, followed by Goldman Sachs and Credit Suisse.