Rising interest rates and a gloomy economy have given the world's largest investment banks their worst year since 2016 in terms of transactions and fundraising.

The top 100 highest-earning banks generated $77.1 billion in 2022 from mergers and acquisitions and equity and debt issuance, down 38 percent year-on-year, according to BCG Expand Research in London.

The value of global mergers and acquisitions fell by a third last year to $3.6 trillion, according to data compiled by Bloomberg.

End of cheap central bank money

"At current levels of inflation, the high-yield environment is not going away overnight and this year is likely to be difficult again," said Jordan Galhardo-Burnett, head of publications and insight at Expand Research.

Banks could focus on other areas like bond and commodity trading, which have been doing well in 2022, he said.

Companies covered by BCG include Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley.

Goldman Sachs processed $982 billion worth of transactions last year, the most of any bank tracked by Bloomberg.

That was about a quarter less than the U.S. bank's total volume in 2021. JPMorgan came second with $733 billion in transaction values, down more than a third from a year earlier.

US banks, which are due to report their fourth-quarter results this week, have already signaled that difficult conditions are impacting performance.

Goldman Sachs' investment banking revenues fell 57% in the third quarter, more than analysts had expected.

Revenue from equity and debt underwriting collapsed, as did merger advisory fees.

At Citigroup, third-quarter investment banking revenue plunged 64 percent, while JPMorgan posted a 47 percent decline.

It all makes for a dismal bonus season for dealmakers.

Bankers who advise on mergers and acquisitions are likely to see their bonuses fall by as much as 20%, Johnson Associates Inc. estimated last year.

Their colleagues in the underwriting department will likely take the biggest hit as bonus payments will fall by as much as 45%, the compensation consultant says.

According to Bloomberg data, companies raised around $204 billion through IPOs in 2022 - more than two-thirds less than in 2021.

end of the party

The past year has been “like an ending party with a hangover settling” for investment banking as governments cut support for the fight against the pandemic and Russia invaded Ukraine, according to Julian Morse, head of London-based small-cap brokerage Cenkos securities plc

However, he believes that more bad news about the war and the economy is already priced in, so any upside surprises could restore confidence in the market.

Some companies may be able to offset the drop in earnings with stronger performance in areas such as government bond trading and cash management, according to Eric Li, head of global banking research at Coalition Greenwich.

Banks expected investment banking to pick up again from mid-2023, Li said. Layoffs are likely to be less pronounced than during the financial crisis.

In addition, the labor market is tight.

"But there will be job cuts and not every job will be secure," Li said.

According to insiders, Goldman Sachs is introducing one of the largest job cuts in its history: As can be heard, the Wall Street bank wants to part with around 3,200 employees this week.

According to informed circles, the job cuts should begin in the middle of the week.

The total number of affected employees will not exceed 3,200, it said.

More than a third of the job cuts are likely to be in the core retail and banking sectors, underscoring the widespread nature of the cuts.

Goldman is also expected to report more than $2 billion in pre-tax losses for a new division that combines credit card and personal loan businesses, it said.

A Goldman spokesman declined to comment.