From the monthly archives:

January 2013

There is a fair bit of consolidation that needs to work through the system before the employment situation improves.  Until then, competition will be fierce and quality opportunities few and far between.

With declining global revenues becoming a long term trend for many investment banks, it seems like not a week goes by without another large scale layoff being announced. No segment of the industry has been harder hit than those on equity desks, whether in New York, London or Hong Kong. While certain investment banking sectors have shown preliminary signs of recovery, primarily fixed income origination and trading, revenues from mergers and acquisitions or initial public offerings have continued to fall.

According to a Coalition Ltd. study featured by Bloomberg, employees on stock desks declined 8.5 percent globally in the nine months ended September 2012. Recent announcements have indicated that this trend is likely to continue, with Morgan Stanley, Citibank and RBS being some of the latest firms to announce further job cuts. Overall, the industry lost 68,000 jobs in 2012 from forty investment banks.

Revenue Concerns Continue to Plague Investment Banking

While global banking markets posted their first increase in revenue in over a year in the third quarter of 2012, equity trading revenue continues to lag all other investment banking segments other than advisory services. Globally, equity trading activities have declined dramatically over the past year, with companies listed on U.S. exchanges seeing an 18 percent decline in trading volumes.

Technological Change also Impacting Equity Segment Jobs

While declining trading volumes and equity listing activities are the leading reasons why we are seeing equity job cuts, the increased use of technology is also having an impact on positions in the industry. With the growing use of computerized trading, advanced algorithms and other technology-based strategies, human traders are becoming expensive relics of the past. While there will likely always been room for human judgement on the trading desk, one individual can now do the same work that a handful of traders a decade ago could manage. This is driving further consolidations in the name of operating efficiency.

What Does this Mean for Job Seekers in Investment Banking?

The outlook for employment in the investment banking industry continues to be quite weak, especially for those focused on equity trading positions. Opportunities continue to be available for experienced individuals in fixed income origination and trading positions. Even in these segments, candidates are finding that many of the most attractive positions are located in overseas markets that are experiencing more rapid economic growth, such as Southeast Asia. Those seeking employment in the industry will need to remain opportunistic and be open to accepting less their ideal positions in the short run while global economies recover.

There is a fair bit of consolidation that needs to work through the system before the employment situation improves. Until then, competition will be fierce and quality opportunities few and far between.

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Amid declining investment banking revenues around the world, there remains a growing call for increased regulation of the industry. From think tanks to governments, it seems that most involved in the discussion of public policy are determined to prevent the consequences of systemic risk from falling on the taxpayer. Whether policy makers are successful in accomplishing that objective remains to be seen, however, we can be sure of increased scrutiny and regulation of a sector that is already struggling for growth.

Calls to Ring-Fence or Split Banking Operations Continue

According to the Financial Times, the British government continues to pressure European Union member nations, such as Germany, to adopt the recommendations of the EU-commissioned Liikanen review. The report suggested that establishing ring fences between investment banks and retail operations would reduce systemic risk. “We need better and more intelligent financial regulation to ensure that banks work for the benefit of our economies. [Liikanen] is an idea that the EU, including Germany, should give serious consideration to implementing,” the British chancellor George Osborne told an annual conference of global policy makers.

Britain is currently moving ahead with plans to implement the “Vickers reforms,” which will establish substantial ring fencing measures between retail and investment banking operations. British financial institutions are growing increasingly concerned that they may be at a competitive disadvantage if reforms take hold in the U.K. before similar rules are adopted by the European Union. Germany, clearly one the largest players in the European financial industry, has been cool to support the Liikanen proposals, fearing potential impacts on their financial institutions, led by Deutsche Bank.

Also in Britain, the Institute for Public Policy Research issued a substantial report on suggested financial industry reform, specifically how to ensure the industry works for all players in the British economy. The think tank is pressuring the government to reduce risk taking in investment banking, while making senior banker’s bonuses subject to claw back in times of bank losses. The report also suggests, along the lines of the Vickers reforms, that investment banking be ring fenced from retail operations. In addition, the report’s author, Tony Dolphin, suggests implementing financial transactional taxes, a move that would certainly have a real and immediate impact on investment banking revenues.

Basel III Backslide a Momentary Break

While pressures continue on other regulatory fronts, banks did receive a brief respite from tougher liquidity rules with the announcement that the implementation of the Basel III reforms will be delayed and with less onerous restrictions than previously thought. More securities will be included in liquidity measures, which should reduce the need for institutions to shrink their loan portfolios. While this may not directly concern investment bankers at first glance, the overall health of their institutions is critical in gaining some forbearance on cost cutting as the investment industry climbs out of the current slump. While delaying the implementation of Basel III may be positive, regulators will continue to look for ways to reduce risk in the system, and such moves will likely have real impacts on the recovery of the investment banking sector.

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While the majority of American and European investment banks are focused on cost reduction and cutting jobs, the largest Malaysian bank is facing growing pains. Malayan Banking Bhd., commonly known as Maybank, is enjoying some sustained success following an increase in merger activity as well as initial public offering transactions in the Southeast Asia region. In fact, the bank is actually feeling the pain of rapid growth, with employees currently working “flat out.” Maybank Chief Executive Tengku Zafrul Abdul Aziz told Bloomberg in an interview in Singapore that “to grow further, we need to recruit. For the number of deals we’re doing, the kind of expansion plans we have, we need to have people.”

These words are not heard often in investment banking circles these days, but the Southeast Asia region has certainly been a more favorable place to operate over the past few years than Europe or North America. The economy in the region has been supported by rising consumer incomes and demand, alongside increased access to credit, and this has pushed investment banking activities higher. Overall, the value of M&A activity in Southeast Asia has increased to $137 billion this year, just slightly below the record set in 2007. Further, Malaysia alone ended 2012 as the fifth largest market for IPOs, ahead of even the United Kingdom. Clearly, there is a significant opportunity available in Southeast Asia for banks that are able to seize it with local knowledge and expertise.

The Success of Maybank and Other Regional Players Has Not Gone Unnoticed

Both the level of investment banking activity and the success of regional players such as Maybank has not gone unnoticed by the major Wall Street players. Despite global cutbacks, Citigroup is actually positioning more staff in Southeast Asia, doubling the amount of investment bankers focused on the region over the last three years. HSBC followed suit, tripling its staff.

While Maybank and rival local banking giant CIMB Group Holdings are aggressively staking out the investment banking market, other regional players are less enthusiastic about taking on the risk of investment banking activities. DBS Group Holdings, which is the largest lender in Southeast Asia, is reluctant to get into the riskier aspects of investment banking and instead is focusing its efforts on fixed income activities. DBS CEO Piyush Gupta told Bloomberg that he prefers the lower risk fixed income activities as they “don’t need a lot of prima donna bankers to try and do that.”

What Does This Mean for Investment Banking Job Seekers?

Despite seeing operations scaled back in developed markets as well as a number of emerging markets, Southeast Asia currently does offer one of the few remaining positive opportunities for investment bankers around the world today. Combined with a relatively high standard of living in financial centers such as Kuala Lumpur and Singapore, economic growth is certainly driving the need for additional resources for many institutions. Local expertise and knowledge is a critical advantage for those seeking opportunities in the region, especially since overall competition will remain fierce with investment bankers from around the world seeking out relatively few openings. For those with professional background in Southeast Asia, or some of the key industries operating in the region, Malaysia, Singapore and other growing jurisdictions do offer some of the best investment banking job opportunities available today.

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Investment Banking Fee Slump Hits Emerging Markets

January 7, 2013

Following years of declining revenues in developed economies such as Europe and the United States, investment banks are beginning to see the trend continue to the once promising emerging markets segment. Lucrative fees in initial public offerings (IPO) and mergers are nowhere to be found, and instead, investment banks are left to focus on corporate […]

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Pace of Investment Bank Job Losses Slowing

January 2, 2013

Though the headline news on investment banking has been mostly gloomy over the recent quarters, there are signs that some investment banks are seeing strength in their business while others are expanding their investment banking operations. While firms such as Citigroup and Credit Suisse are announcing new cuts to their investment banking unit, there are […]

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