From the monthly archives:

September 2012

According to a Dow Jones Financial News report released recently, after a strong first quarter in 2012, the second quarter has not lived up to expectations for investment banks around the world. Revenues worldwide at investment banks are down ten percent year over year when looking at the first half of 2012, while net margins are even worse, falling fifteen percent.

The report suggests that investment banks will be required to further cut staff and costs as these margins continue to plummet, in addition to the 30,000 bankers that have lost their jobs over the past twelve months. Some pundits even question whether investment banks will continue to exist in their current form moving forward.

Concerns for Future Cuts

With top line revenues falling so substantially in the first half of the year, the reality is sinking in with investment banks that the deal volume simply doesn’t exist anymore, and that is making it difficult to justify maintaining current staffing levels. Banks are already struggling to control costs with the current level of layoffs, and senior executives of integrated banks are going to begin to demand instant results if their investment banking arms are not contributing to their overall margins.

What Will the Next 5 Years Bring?

The Dow Jones report suggests that some institutions will begin to look beyond cuts and may start examining whether or not to exit the investment banking business altogether. With such a high risk segment acting as a drag on earnings, the risk adjusted returns of many diversified financial institutions are being negatively impacted by their investment banking arms. Directors, executives and ultimately shareholders are unlikely to tolerate that reality forever, and additional regulatory and political pressures may end up forcing the hand of many organizations.

What this Means for Investment Banking Job Seekers

The outlook in investment banking is still quite negative for most looking to enter the industry. Layoffs in many investment banks are still widespread, and there certainly are not many firms looking at add internal resources at this time. However, some optimism may be drawn by the reality that a consolidated industry, with fewer participants, maybe stronger in the future. However, the shakeout of existing experienced investment bankers needs to occur before any significant number of new opportunities will open up.

The one exception to this case is for individuals with highly specialized knowledge of certain industries that are still experiencing significant transaction volume. Boutique firms are still experiences some success in industries such as energy and in some technology areas. These firms will continue to look for talent and knowledge to add to their current in house resources. Outside of these specialized firms, however, investment banking is certainly not appearing to be a top choice for those looking for employment opportunities.

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To say the job market for those looking to join the investment banking community is “tough” is an understatement.

While there is no denying the allure of an investment banking job, there is also no denying that these jobs are harder to come by. Broadly speaking, investment banks have not made it any harder to land these once-coveted positions. Unfortunately, the macroeconomic environment has made finding a top-flight investment banking job considerably harder than it was prior to the financial crisis.

Europe to Blame?

For example, Europe’s sovereign debt crisis has had a toxic impact on the investment banking job landscape. As global financial markets have grown skittish regarding the length and depth of the crisis, major investment banks operating in Europe have not been shy about taking the ax to their payrolls. In May, J.P. Morgan Chase cut more investment banking jobs in their London office. In June, Credit Suisse said it would pare its European investment banking staff by a jaw-dropping 30 percent.

Those are just two examples and they come on the heels of almost 134,000 job cuts by global investment banks in the second half of 2011. In fact, in 2011, it was easier to find a marquee bank that was slashed investment banking jobs than it was to find a firm that was not paring payrolls. Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley, RBS, UBS and dozens of others dot the list of firms that eliminated investment banking positions last year.

All of the Big Banks

Unfortunately, the recent environment for investment banking jobs seekers has grown even more challenging. In a matter of less than two weeks in mid-July and early August, Societe Generale said it would eliminate 1,500 investment banking jobs while Deutsche Bank said it will pare its investment banking roster by 10 percent.

Through the first half of 2012, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley and J.P. Morgan had cut 18,000 jobs, the Wall Street Journal reported. Barclays Capital may lower its investment banking staff by 20 percent, the Sunday Times of London reported in August.

Asia Also Feeling the Pain

Even in high-growth Asian markets, investment banks have scaled back on hiring and some have gone as far as to cut banking jobs. That is not surprising because deal activity in the Asia-Pacific region is slumping. Equity capital markets revenues in Asia ex-Japan are down 40 percent from a year ago, the Journal reported. What might sting a bit for prospective investment bankers looking to relocate to Asia is that the job market for bankers there is tepid despite a brisk IPO market.

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Investment bankers spend their day advising businesses, individuals, governments, and corporations on capital raising (corporate finance, mergers and acquisitions) and acting as the intermediary in issuing securities (IPOs, structuring debt and equity).  As opposed to hedge fund managers or private equity professions, the investment banker’s life is a little less connected to maximizing return on investments (a little less really means a little less – investment bankers certainly are affected by investment returns).

How has the economy affected the investment bankers’ life over the past few years?  Well, first some background: before the onset of the financial crisis of 2008 and 2009, employment in the investment banking sector grew at about 5 times the overall economy’s growth rate.

Times were good, really good.

When things went south in 2008, the industry took a beating, with the industry’s employment growth rate going from a year over year high of over 15 percent in the winter of 2007 to a low of almost negative 10 percent in the early fall of 2009.  Things picked up for about a year and then went south again in the fall of 2010, bottoming out at about negative 9 percent in the fall of 2011.  As opposed to wealth management firms, such as hedge funds and private equity firms, the industry is still shedding jobs – at about a 5 percent clip – indicating that businesses are not too confident right now in doing mergers and acquisition deals, issuing IPOs, or restructuring their debt and equity mix.

Industry growth determined by a variety of factors

When will the investment banking industry pick up?  The multi-trillion dollar question depends not only on such things as economic growth, but also on expected profitability, regulation, competing financial sectors, and trading volume.

The factor causing the most pain recently is regulation. As a result of the financial crisis, politicians and government bureaucrats have attempted to control such investment banking activities as trading in the capital markets with their own money or creatively designing certain financial instruments, such as the mortgage back debt instruments that turned sour during the financial crisis.  When the individuals running investment banks have greater confidence that regulators will stop pushing for tighter regulation, employment growth will likely move in the positive direction – the real question is, then: when will politicians and government regulators start realizing that investment banking is a vital economic activity that contributes not only to their bottom line, but also to improving Main Street’s economic condition?

If you can answer this question correctly, then you know when investment banking employment activity will pick up.

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LIBOR and Other Investment Banking Revelations

September 3, 2012

Following recent publicity and concerns about the scale of Barclays’ LIBOR (London Inter-Bank Offered Rate) rate fixing, other revelations continue to emerge.  These are all ‘bad news’ for many leading banks and investment banking generally, both in the UK and internationally. They are also a reminder that there is much in global banking that needs […]

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