Investment Banking Changes Focus to Bonds

There was further evidence this week of the continued decline in the investment banking industry this week, as rumors surfaced that UBS was going to cut an additional 10,000 employees in coming months. The announcement marks a continuation of a long line of layoffs announcements in the industry as initial public offerings as well as mergers and acquisition dry up. The trend has been present in all major markets, from North America, to Europe, and even to Asian. The latest rumors circling UBS would certainly some of the most aggressive cuts that have been seen to date, as they would total 16 percent of the banks workforce.

UBS has been facing increasing pressures from Swiss regulators to reduce their investment banking operations and focus on more traditional business lines, which is not unlike banks in several European countries. The same Daily Telegraph report that suggested Chief Executive Sergio Ermotti will announce that the bank will formerly announce the shift of investment banking to non-core status in order to reduce risk-weighted assets. The bank has declined comment on the rumors.

Select Institutions Thrive in Strong Bond Markets

While the Swiss institution flounders, two other institutions have seen greater success as a result of a change in focus. While also recently announcing sizeable cuts to its workforce, fixed income trading has become one of the biggest profit drivers for Deutsche Bank. In low interest rate environments, corporations in all major financial markets are looking to issue long term debt securities in order to lock in rates at historical lows. While these transactions don’t offer the same high margins as the prestigious merger and acquisition business, it is a steady source of income for the institutions that have realigned themselves with this segment of the industry.

JP Morgan is the second western economy focused bank benefiting from this shift in the industry, and actually has positioned itself as the leading global debt bookrunner to date in 2012. JP Morgan specifically identified its fixed income business as a leading driver for growth in its second quarter earnings announcement.

What Does this Mean for Investment Banking Job Seekers?

The investment banking industry continues to be a tough road for those looking for employment. Declining merger and acquisition activity has really forced the hand of most major investment banks to cut staff, and very few openings exists at any institution for those in traditional investment banking roles. Pay is declining, due to both regulation and market factors, and many are simply looking to other areas of finance, including corporate positions and private equity type roles.

There does remain a niche opportunity for experienced fixed income origination and trading professionals with several years of experience in select markets. Competition is fierce and often those seeking work on competing for those fighting tooth and nail from within the organization for a transfer. Again, this has negative impacts on pay, but it is a source of opportunity of those with the right connections and experience.

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