From the monthly archives:

December 2012

Standard and Poor’s, one of the leading global credit rating agencies, released some comments about the investment banking industry in general this month. Overall, the agency sees a mixed outlook for the industry, with some opportunity for growth, albeit with a great deal of uncertainty and risk. Cost cutting is expecting to continue for several more years, while the implementation of Basel III may lead to differences in terms of competitiveness between jurisdictions. That said, modestly increasing revenues and more responsible risk practices may see investment banking credit profiles improved in the medium term.

Cost Cutting and De-leveraging Expected to Continue for Several Years

In the view of S&P, cost cutting and de-leveraging is expected to continue amongst the investment banking industry for “several years.” Interestingly, the rating agency doesn’t view these cuts as being driven purely by regulatory changes but rather will continue even once the regulatory landscape has stabilized. While painful for employees in the short run, these cuts will eventually leave the industry better off, with higher margins for the giants. This will act to counterbalance diminishing returns on equity caused by ongoing deleveraging.

Capital Markets Revenues Projected to be Stable

While cost cuts seem to be a longer term trend, revenues appear to be set to make a modest recovery. S&P predicts that revenues will be approximately 5 percent higher in 2012 than in 2011. This will be followed this coming year by revenues generally in line with 2012 results, though there may be more risk to the downside than to any positive growth. The rating agency also expects that institutions focused on U.S. operations will outperform their European-focused peers.

Responsible Investment Banks May Improve Their Credit Profile Over Time

The de-leveraging and better risk practices taking hold across the industry will likely improve the stand-alone credit profile of investment banks over the next several years. While much of this change has been driven by tighter banking regulations, the industry does deserve some credit in how it is moving to better assess risk. Institutions with better credit profiles will be able to obtain lower cost capital to fund proprietary operations, which could result in higher margins in the medium to longer term.

Regulatory Differences Will Lead to Competitive Distortions

Standard and Poor’s remains concerned about differences in regulatory regimes across different jurisdictions, leading to competitive issues between institutions. In Australia, Japan and Switzerland, for example, all will see the implementation of Basel III occur on schedule. This puts their institutions in a more difficult position in delivering returns equal to their peers in the U.S. and Europe who will not be facing the same regulatory framework. The implementation of the Volcker rule as well as European ring fencing measures may also weigh on the industry, but the extent and timing remains uncertain at this time.

Overall, the rating agency paints a picture of great uncertainty for investment banking, but also some opportunity to begin turning the ship around. Stability in terms of capital market revenues will be welcome relief to most that rely on the industry, especially following several years of volatility. Further consolidation will be painful in the short run, but will set the industry up for a stronger future. Importantly, governments and regulators will hold a key stake in the future direction of the industry – one that is core to any sustained economic recovery in the developed world.

Unsurprisingly, it looks to be an interesting time ahead for the investment banking industry.

{ Comments on this entry are closed }

Investment banking job cuts are continuing worldwide, with the latest unconfirmed reporting circling around Credit Suisse’s Dubai operation. The Swiss bank is said to want to consolidate its regional investment banking business to Qatar while locating its equities business in Riyadh, Saudi Arabia. According to Bloomberg, some staff will relocate to Doha from the existing office, while other positions will be cut entirely.

The decision to locate its Middle Eastern and North African operations in Qatar may be linked to investment ties between the country and company. The nation has a six percent stake in the firm, while also owning its London head office real-estate. Qatar is working diligently to establish economic activity in the financial sector in order to diversify its economy away from its traditional reliance on oil and natural gas revenues.

Credit Suisse responded to the report of the planned reorganization by reinforcing its commitment to the region, stating, “Credit Suisse remains committed to providing a range of banking services to the MENA region. We continue to be proactive about monitoring the size of our business relative to client opportunities and market conditions. This involves realigning resources to growth areas and adjusting capacity to meet client needs and to manage costs across our businesses.”

This type of reorganization is becoming common across the industry, as firms look to reduce costs by consolidating operations. While firms may have had offices in several countries within a region in order to serve customers more closely, the cost is becoming prohibitive as activity slows. This is resulting in larger, more efficient regional offices.

Rumor Follows Significant New York Cuts by Credit Suisse

Just a week before the rumor of the Middle East shuffle for Credit Suisse, the bank announced substantial cut backs in its Manhattan offices. In the United States, the bank expects to reduce its headcount by 120 employees as part of a plan to control costs throughout the organization. In October, Credit Suisse told investors that it intended to cut one billion Swiss Francs in ongoing operating costs by the end of 2015. These cuts are incremental to additional announcements of 3 billion in savings announced earlier in the year.

What Does This Mean for Investment Banking Job Seekers?

The ongoing news from around the world is certainly not painting an optimistic picture for those seeking employment in the investment banking sector. Most institutions are in a period of consolidation, meaning reduced staff levels and combining regional operations in order to reduce costs. Over 300,000 investment bankers have lost their jobs over the last two years, signalling fierce competition for the few jobs available today.

However, the definition of investment banking is fairly broad. Included in the industry are some segments that are actually experiencing some growth, including fixed income trading and origination as one example. Opportunities do exist in these specialities for those with a track record of success and strong experience, though competition from a very large candidate pool may be intimidating.

{ Comments on this entry are closed }

After a solid year of retrenchment in 2008 followed by several years of declining foreign staffing levels, European investment banks are again turning to the United States in search of new opportunities to expand their revenue. With the European economic outlook unimproved, investment banks are starting to seek out revenue wherever they can find business. Though, with markets continuing to be tight even within the United States, it remains to be seen whether this expansion will bring success to the European institutions, or just increase competitive tensions which result in lower margins for all players.

BNP Paribas and Societe Generale Lead the Way Back Into the United States

Two of the first movers back towards the United States are French giants BNP Paribas and Societe Generale. According to Reuters, both banks are actively recruiting American bankers and are preparing to grow their overseas staffing levels for the first time in years. Both banks are focusing in on investment banking segments that are still producing growing revenues, including fixed income, private banking and mortgage securitization. While this does not match the widespread influence European banks had in U.S. markets prior to the crash, it certainly is a new attitude that is opening up desperately needed opportunities for those currently seeking new positions within the industry.

While the two French banks are certainly making a big splash, Nomura is also hiring more subtly, with the announcement of new management for their Americas coverage. The Japanese bank’s wholesale arm recently had reported its strongest revenues from the segment in recent history.

In Past Years, European Banks Shifted Focus to Defending Own Market

Since the financial crisis began to expand in 2007, European banks had adopted a more defensive stance. This became even more apparent as the economic situation in Europe continued to decline. Requiring all available financial reserves for their European operations, most foreign banks, including BNP Paribas and Societe Generale, retrenched their American presence. However, as the European economic recovery has stalled and new revenues can’t be found at home for most of these institutions, the shift back to America is a logical choice.

What Do These Latest Developments Mean for Investment Banking Job Seekers?

The departure of the major European banks from the American market was certainly a major contributor to the dark times in the investment banking job market over the past several years. The return of two major French investment banks is certainly very welcome news for those seeking opportunities within the industry.

While competition among job seekers will remain intense for some time with the vast number of bankers seeking work, those with specialized experienced in select niches will start seeing more openings. As we’ve seen over the past several months, investment banking opportunities have been focused in select areas of the profession. This remains true with the European banks expanding their U.S. presence. The focus on fixed income, private banking and mortgage securitization is consistent with the growth seen domestically within American investment banks. Unfortunately, the outlook remains quite negative for those who are specialists in investment banking markets that continue to decline, such as initial public offerings.

{ Comments on this entry are closed }

Investment Banking Regulation Creates Political Conflict in Britain

December 10, 2012

The investment banking industry has certainly seen its share of regulatory criticism and increased oversight since the market meltdown of 2008. Around the world, governments, regulators and central banks are looking at ways at reducing risk within their nations’ core banking operations. In many cases, this may mean splitting higher risk proprietary trading activities and […]

Read the full article →

Investment Banking Shows Strength in South East Asia

December 3, 2012

With endless reports of job cuts and scaled back investment banking operations across the world, many seeking employment in finance’s elite segment have many reasons to be pessimistic. Roland Berger Strategy recently reported that another 40,000 positions would need to be slashed in order for the industry to return to profitability. Declining merger and acquisition […]

Read the full article →
Real Time Web Analytics