The strong investment banking revenue results posted in May are causing a great deal of optimism within the industry for a strong second half of 2013. The Wall Street Journal is reporting that revenues for the year are likely to be 10 to 15 percent higher than 2012 numbers based on the trend demonstrated so far. These results are representative of an industry heading back towards strength, and we’re seeing the results in the employment space as well, as indicated by our article last week that suggested that demand for some positions are starting to outpace supply.
Many Investment Banking Sectors Outperforming
While we have seen strong results from bond desks and some advisory activity over the past few years, renewed strength across the board is certainly behind some of the optimism. Equity capital markets revenues began to heat up in the second half of 2012, however that was offset by some fall in bond origination and trading revenues, albeit from recent highs. Now, however, we’re seeing most segments performing well, including both equity and bond capital markets. While the demand for talent in the industry had been based upon certain specialized skills over the past few years, current demand likely is more broadly based.
The one segment that is still struggling to return to past highs is the M&A advisory area. Deutsche Bank’s Matt Spick indicated in a recent note that, “We are now two-thirds of the way through Q2, and investment banking trends are looking robust for the second quarter across most asset classes, with M&A announced the main area of weakness (still).” Many companies may be delaying acquisition activity due to high current price to earnings multiples and uncertainty about the near term economy.
Fixed Income Still Leading the Way in May
Despite the strength of equity capital markets in recent months, fixed income desks are still providing some of the most lucrative returns for many investment banks. There was strong debt issuance in May in particular, including more cyclical segments such as high-yield and leveraged loans. Equity secondary offerings were also a strong source of revenue, while again M&A, as well as initial public offerings, lagged behind the leaders.
What Are the Implications for Investment Banking Job Seekers?
We’re now seeing a sustained level of revenue growth across many firms and many countries. This does suggest some reason for optimism for employment prospects in the coming months. Projected industry revenue growth does offer investment banking units to make the case for expanding their teams to their wider financial institutions or to their investors, as the case may be. This contrasts sharply with the past several years where declining revenues across the industry made it difficult for senior managers to pitch further investment in what seemed to be a dying financial industry segment.
That said, the industry does face growing pressure, uncertainty, and cost from ongoing regulatory reform. Unsure of what new regulation may cost, some firms have seemed unwilling to grow their committed resources, despite the potential for overall industry growth. Until we see some increased certainty and predictability from financial regulators worldwide, employment growth in the investment banking industry will be constrained.