The first quarter of 2013 certainly looks to be promising for investment banks around the world. According to a Financial News article that summarized data from Thomson Reuters, fee revenues have climbed dramatically in the first part of the year. Some institutions even saw gains north of 40 percent. This growth will be welcome news to an industry that has struggled to find any momentum in revenue for the past several years. That said, questions about developments in the European economy continue to weigh negatively on the outlook.
Up until March 12, 2013, investment banks booked fee revenue of nearly $14 billion, which is a modest gain from the $13.6 billion earned in the same time period in 2012. The larger investment banks fared substantially better, however, earning $7.7 billion, an increase of 20 percent over the $6.4 billion earned the prior year. The growth was widespread among the leading banks, with eight of the top ten experiencing earnings growth.
First Quarter Revenue Buoyed by Strong Debt Capital Markets Activity
The first quarter of most years is generally the strongest for debt capital markets activity. Generally, corporations are looking to tap into investors for funding to start off the year with full coffers, and the current interest rate environment is seeing companies do this en masse. Uncertainty in global credit markets, brought on by developments yet again in European markets, are also likely influencing corporate creditors to reach out and secure funding. Fearing a repeat of the difficult bond markets following the financial crisis, companies are being proactive in securing their required funds far in advance.
What has this meant for investment banks? Well, the strong revenue outlook for the first quarter is really reflecting an ongoing trend towards out-performance in the corporate fixed income segment of the industry. Other investment banking activities, such as initial public offerings, continue to struggle. These difficulties could continue to weigh on earnings later in the year, when fixed income volumes are typically weaker. That said, global announced M&A volumes have increased marginally this year, approximately 6 percent, indicating that there may be some upside growth beyond the bond desk.
What Does This Mean for Those Seeking Investment Banking Jobs?
The investment banking industry continues to be highly volatile, and uncertainty on the horizon in Europe and in development markets isn’t making the employment situation easy for most job seekers. In addition, various segments of the investment banking industry are posting significantly different results, creating a very unbalanced playing field. While the fixed income desk may be aggressively hiring new talent, those working on initial public offerings or derivatives origination may be under significant pressure. This creates significant competition within the industry for available positions. Add in geographic differences and you’ve got a market that is very difficult for job seekers to read.
The reality remains that opportunism will be at the heart of any successful job seeking strategy in the investment banking industry today. Job seekers need to find ways to apply their skills and experience to high demand segments, while keeping an open mind about where they want to work geographically.