Why is investment banking employment still lagging?
Take a look at the following figure.
The figure shows the growth in investment banking jobs in the United States from 2004 to June 2013 on an absolute basis and on a year over year employment growth rate basis for the three major financial industry’s sectors: investment banking, hedge funds, and private equity.
In looking at the employment figures, one might simply see an economic cycle, with all three industries now experiencing positive employment growth following the tough years of 2009 and 2010.
Overall, in looking at just the past two months, investment banking jobs are up about two percent, with hedge fund employment up a little less than two percent and private equity employment growing at a little more than two percent.
It’s hard to tell from the year over year figures that one industry is still under more pressure than the other two.
Now take a look at the following figure.
The figure shows the how close the three financial industries are from recovering all the employment that was lost during the past recession.
Interestingly, in April 2013 private equity become the first, and is still the only one of the three, to have more individuals employed than it did in January 2008. As of June 2013 (the most recently available data), employment in the private equity industry is about one percent above where it stood at the beginning of the recession.
Although the private equity industry has the lead, largely due to fewer employment reductions during the downturn, the lead isn’t secure. The hedge fund industry, the most volatile of the three, has been gaining ground until recently. If the recent hiccups in the hedge fund industry turn out to be only hiccups, as is expected, hedge fund industry employment will be in positive territory by Thanksgiving, or at the latest, Christmas.
The hedge fund and private equity industries’ experiences are in contrast to the investment banking industry, which has been under much more pressure to recover what it lost. As of writing, industry employment is still about 7 percent below where it stood in January 2008. If the recent employment trends continue, the investment banking industry may be in positive territory by this time next year at the earliest.
What’s causing the laggard performance of the investment banking industry?
Although explanations differ in some of the details, experts generally agree on two of the causes (readers should follow the links for further discussion on each of these issues and explanation of the effects on the investment banking industry’s condition).
The first cause of the laggard performance is impending implementation of Dodd-Frank and related regulations.
The second is upcoming Basel III requirements regarding leverage, capital requirements, and liquidity proposals.
Overall, employment in the investment banking industry continues to lag employment growth in the hedge fund and private equity industries. Although industry professionals give various detailed reasons behind the lagging performance, most appear to agree that Dodd-Frank and Basel III are major sources of concern in explaining the investment banking industry’s employment situation.