Banks Face Biggest Crisis in 30 Years, Report Shows (Edward Evans)

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April 1 (Bloomberg) -- Credit market turmoil poses the most severe crisis for banks in 30 years, surpassing Black Monday in 1987, the Asia currency crisis and the bursting of the dot-com bubble, Morgan Stanley and Oliver Wyman said in a joint report.

Revenue from investment banking may drop 20 percent in 2008, with credit businesses declining 60 percent, analysts led by Huw van Steenis said in a note to clients today. Six quarters of earnings will be erased by writedowns and falling revenue by this month, rivaling the collapse of the junk bond market at the end of the 1980s that put Drexel Burnham Lambert Inc. out of business, the report said.

``The industry is facing the most severe investment banking crisis in 30 years,'' the analysts wrote in the report. ``Global securities markets are in the midst of profound cyclical and structural change.''

UBS AG and Deutsche Bank AG, two of Europe's biggest banks, posted today a combined $23 billion of writedowns linked to the collapse of the subprime mortgage market. In all, investment banks may post $75 billion in markdowns in 2008, according to the report. Writedowns and losses on subprime-infected assets have already cost the world's biggest banks about $230 billion since the start of 2007.

Investment-banking revenue has also stalled as the pace of takeovers and initial public offerings declined in the first quarter of 2008. Mergers and acquisitions bankers suffered a 35 percent drop in fees during the first quarter as the value of announced takeovers fell to $656 billion from $971 billion a year earlier, according to data compiled by Bloomberg.