Matt Koppenheffer at Motley Fool recently offered an entertaining look at the major trends we might expect next year in the investment banking industry. After a hammering in 2008-2009 and robust recovery in 2010, next year is shaping up as a transitional year, he says. Some trends we can look forward to include:
– China rising: equity capital raising in the whole Asia Pacific region (excluding Japan) was up 36% year over year, to a total of $184 billion. Compare that to the $144 billion raised in the Americas and $86 billion in Europe. Asian M&A still trails the West but is catching up fast.
Given the unique cultural complexities of the region, it’s no surprise that home-grown talent is getting snapped up for investment banking jobs in the region. Goldman Sachs and JPMorgan Chase top the list of big players in the Asia region.
– Shifting profit centers: As Koppenheffer points out, “when one door closes, another opens.” Investment bankers are quick to look for new revenue sources when markets dry up or government regulations put the squeeze on profits. Traditional investment banking, such as raising equity capital and M&A advisory, will continue to make a contribution to the bottom line, but a relatively small one. However, the big money-maker for investment banks, trading activity, both for a bank’s own accounts as well as for clients, is poised for the biggest change.
Regulatory changes are forcing banks to scale back considerably in this activity, which will have a major impact on the bottom line. To fill the gap, many banks are turning to wealth management. Bloomberg reported that major banks such as JPMorgan, Deutsche Bank and Citigroup are snapping up bankers to cater to high-net-worth individuals. It’s a fee-based, less risky approach to padding their profits.
However, Koppenheffer says it could just be a temporary lull. Investment bankers excel at coming up with new and complex schemes for bringing in big profits. The industry is definitely in a state of flux. We could be just months away from the “next big thing.”
What’s your take? What area of investment banking do you think can take over in generating revenues as trading revenues decline? Add your comments below.