Johannesburg — CONFIDENCE among investment bankers in the second quarter had plummeted to its lowest level in nearly a decade, Ernst & Young said yesterday, hardly a day after the company released similar depressing news from asset managers.

Ernst & Young said a survey carried out on its behalf by the Bureau for Economic Research found that investment bankers were downbeat mainly due to low business and income growth.

Small and large asset managers had also revealed in a separate survey released this week that their confidence had fallen sharply - also in the second quarter - due to poor profitability and business growth.

The results of the surveys demonstrate the negative effects on the economy of the global downturn, and the renewed uncertainty spawned by the European sovereign debt crisis.

The survey on banks said confidence of investment banks fell from a revised 62 index points in the first quarter of the year to its lowest ever level of just 25 points in the second quarter.

Retail bankers were, however, more upbeat even though earnings were still depressed and consumer lending was only starting to recover.

Ernst & Young lead banking and capital markets director Emilio Pera told Business Day that investment banking tended to react more negatively to unexpected shocks - such as the Greek debt crisis - than retail banking, which normally followed trends.

"If you unpack retail and investment banking separately, retail banking follows trends whereas investment banking, depending on their market, react more negatively to shocks", even though they could be dealing in a smaller number of - but larger - transactions, Mr Pera said.

According to the survey, despite high household debt and weak consumer income, retail bankers were more optimistic that the light at the end of the tunnel was not another trainload of more problems.

Mr Pera said the recent upsurge in marketing spend by retail banks swarming the market with product advertisements indicated the race to grow deposits and earnings had begun.

Banks were also strengthening IT systems in compliance with tougher regulatory requirements, showing that they were pinning hopes on further recovery, particularly in consumer lending.

"Banks are spending for the future from which they will benefit and it is already starting to look better and I think top-line earnings are growing, what they need now is to translate this into bottom-line growth," he said.

He predicted a recovery in business confidence among both retail and investment bankers during the remainder of this year. "Both investment and retail banks are likely to see an improving profit scenario through the remainder of 2010, barring further global investment uncertainty," Mr Pera said.

The survey said despite weak growth, retail and passenger vehicle sales seemed to be slowly recovering, helping to boost bankers' confidence levels.