An 2015 Outlook for Investment Banking Jobs

The 2014 year is almost over.  Being good analysts, it seems like a good idea to review how investment banking employment did through the year and what the industry can expect for 2015.

A Look Back at 2014 – Actual Employment

The first graphic is a look at total investment banking industry employment since 1990.  Perhaps unsurprisingly, 2014 is set to be the best year for the investment banking industry since 2010. Overall, investment banking firms are estimated to have employed around 1,200 more individuals in 2014 than they did in 2013, representing a growth rate of around 1%.

As a “sad” note, and in contrast to most other finance sectors, the investment banking industry is still well below its previous peak employment of around 101,000 in July 2007 (employment in the industry generally jumps in summer months as college interns come to spend some time with the world’s financial leaders). With the note that the industry is still well below its all-time peak, the industry has been on an upward trajectory over the past two-and-one-half year.

Employment in the investment banking industry bottomed in May 2012 at about 90,000. Since that time, investment banking firms have “only” added around 7,000 jobs. What factors are behind the relative weakness of investment banking employment growth?

The slow down can be blamed on two regulatory forces. The first factor is the preparation and implementation of Dodd-Frank.  The second is preparation for Basel III (although implementation is still four or five years off, at the earliest).

With the regulatory forces acting as a downward force on investment banking industry employment, it might seem somewhat surprising that the industry is still adding jobs, but the industry is adding jobs, just at a slower pace than what historically would be the case.

Investment Banking Employment (through2014) Sources: Econometric Studios, Moody’s, BLS

 

Looking Back at Year-Over-Year Growth

In terms of the year-over-year growth rate, 2014 looks relatively mediocre.  The year (2014) started off with a year-over-year growth rate of almost 2%. That 2% growth rate decelerated to about 1% by year’s end.  By contrast, the economy as a whole is operating at a little less than a 2% annual rate. The picture for the investment banking industry could aptly be described as cautiously optimistic, with a heavy emphasis on caution.

Prior to the financial crisis, investment banking firms were adding jobs at a peak 17% annual rate (December 2006). Those days are clearly long gone, with no signs of them coming back any time soon. In all, year-over-year investment banking employment growth is subdued, although history and indications suggest that moderate growth is still on the horizon.

YY Investment Banking Employment (through2014) Sources: Econometric Studios, Moody’s, BLS

 

Looking Forward to 2015

With the actual experience and year-over-year growth rates established, what can we expect in the coming year?

The first graph presented contains statistical ranges for the outlook year (2015). Overall, statistics put the 2015 projection at around 2,000, which would be a slight acceleration from the current 1% year-over-year growth rate.

The range on the 2015 forecast is surprisingly large.  This is due to the general under-performance of the investment banking industry.

An informed forecast, which includes the statistical forecast, probably puts the investment banking employment growth rate closer to 3% as the economy begins to add steam.  A 3% growth rate puts the net new jobs at around 3,000.

Conclusion

Overall, 2014 was a moderately positive year for the investment banking industry.  Presuming the economy gains some momentum in the year ahead, the investment banking industry may add 2,000 to 3,000 new jobs in 2015, representing a moderately positive baseline forecast.

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