Volumes in European mergers and acquisitions and new issues have slumped to their worst start for the year in over five years, as the slowdown in investment banking begins to bite. In the wake of the collapse of the telecoms and technology sector, European stock markets have also posted their worst start to the year in three years, while the number of exits by private equity firms has slowed to almost zero.

The collapse in investment banking activity raises serious concerns over the ability of many investment banks in Europe to cover the huge cost bases they have built up through aggressive hiring in the past few years. Credit Suisse First Boston is understood to be laying off another 100 bankers across Europe, mainly in M&A, and speculation is rife that Merrill Lynch is also planning a cutback. Both firms declined to comment. Goldman Sachs said last week that market conditions were one reason why it was 'more aggressive than usual' in its annual performance review, which saw the departure of several hundred staff across the firm.