From the monthly archives:

December 2014

The 2014 year is almost over.  Being good analysts, it seems like a good idea to review how investment banking employment did through the year and what the industry can expect for 2015.

A Look Back at 2014 – Actual Employment

The first graphic is a look at total investment banking industry employment since 1990.  Perhaps unsurprisingly, 2014 is set to be the best year for the investment banking industry since 2010. Overall, investment banking firms are estimated to have employed around 1,200 more individuals in 2014 than they did in 2013, representing a growth rate of around 1%.

As a “sad” note, and in contrast to most other finance sectors, the investment banking industry is still well below its previous peak employment of around 101,000 in July 2007 (employment in the industry generally jumps in summer months as college interns come to spend some time with the world’s financial leaders). With the note that the industry is still well below its all-time peak, the industry has been on an upward trajectory over the past two-and-one-half year.

Employment in the investment banking industry bottomed in May 2012 at about 90,000. Since that time, investment banking firms have “only” added around 7,000 jobs. What factors are behind the relative weakness of investment banking employment growth?

The slow down can be blamed on two regulatory forces. The first factor is the preparation and implementation of Dodd-Frank.  The second is preparation for Basel III (although implementation is still four or five years off, at the earliest).

With the regulatory forces acting as a downward force on investment banking industry employment, it might seem somewhat surprising that the industry is still adding jobs, but the industry is adding jobs, just at a slower pace than what historically would be the case.

Investment Banking Employment (through2014) Sources: Econometric Studios, Moody’s, BLS


Looking Back at Year-Over-Year Growth

In terms of the year-over-year growth rate, 2014 looks relatively mediocre.  The year (2014) started off with a year-over-year growth rate of almost 2%. That 2% growth rate decelerated to about 1% by year’s end.  By contrast, the economy as a whole is operating at a little less than a 2% annual rate. The picture for the investment banking industry could aptly be described as cautiously optimistic, with a heavy emphasis on caution.

Prior to the financial crisis, investment banking firms were adding jobs at a peak 17% annual rate (December 2006). Those days are clearly long gone, with no signs of them coming back any time soon. In all, year-over-year investment banking employment growth is subdued, although history and indications suggest that moderate growth is still on the horizon.

YY Investment Banking Employment (through2014) Sources: Econometric Studios, Moody’s, BLS


Looking Forward to 2015

With the actual experience and year-over-year growth rates established, what can we expect in the coming year?

The first graph presented contains statistical ranges for the outlook year (2015). Overall, statistics put the 2015 projection at around 2,000, which would be a slight acceleration from the current 1% year-over-year growth rate.

The range on the 2015 forecast is surprisingly large.  This is due to the general under-performance of the investment banking industry.

An informed forecast, which includes the statistical forecast, probably puts the investment banking employment growth rate closer to 3% as the economy begins to add steam.  A 3% growth rate puts the net new jobs at around 3,000.


Overall, 2014 was a moderately positive year for the investment banking industry.  Presuming the economy gains some momentum in the year ahead, the investment banking industry may add 2,000 to 3,000 new jobs in 2015, representing a moderately positive baseline forecast.

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The global economy started 2014 off with moderate strength.  Since then, its status has been downgraded to moderately weak. Entering 2015 with this background, there’s one question investment bankers certainly have on their mind. Which of the big 6 central banks will cause investment bankers the most heartburn in 2015? Let’s take a look.

European Central Bank (ECB)

The ECB appears the most dovish of all the major central banks. It has been six years of loose monetary policy in the Old World (September 2008 was when the ECB first made it’s move).

Recent indications from ECB President Draghi continue the uber-dovish tendency, indicating that the ECB will likely take steps to expand its balance sheet.  The ECB’s balance sheet expanded quickly from May 2011 to June 2012.  Since then, the ECB has watched its balance sheet decline by about 100% (dropping from +178% in June 2012 compared to January 2007 to 78% in September 2014).

The continued weak nature of the ECB certainly puts the ECB close to the top of concerns for investment bankers, but in this case, the concern is most likely a positive concern.  Investment bankers as a group generally want weaker monetary policy.

European Central Bank

Federal Reserve (Fed)

Akin to the ECB, the Fed has been incredibly dovish since August 2007 (the month the Fed started lowering its main policy rate). In addition to questionable policy motivations behind historically low interest rates, the Fed has also been quite active in expanding its balance sheet. Since January 2007, the Fed’s balance sheet is up about 415%.

The question now is – will the Fed be able to raise rates before implementing further balance sheet expansion (i.e. QE 4)? The (perhaps futile) debate about when the Fed will raise rate certainly puts Ms. Yellen and members of the Federal Reserve Open Market Committee close to the top of central banks that investment bankers should be worried about.

Federal Reserve

People’s Bank of China (PBOC)

The PBOC has been much more prudent in manipulating short-term interest rates and expansion of its balance sheet, with its balance sheet up “only” 125% compared to the Fed’s 415%.

Interestingly, the PBOC has become markedly more weak in its policy stance, recently lowering its main policy rate from 6% to 5.6%.  The somewhat surprising policy rate change coincided with some announcements on expanding its balance sheet in minor ways.

With PBOC flipping to a dovish stance, the PBOC is unlikely to give investment bankers much to worry about, unless, of course, strong price appreciation materializes.

People's Bank of China

Bank of Japan (BOJ)

Akin to the ECB and PBOC, the BOJ recently shifted to a quite more dovish view. This view, no doubt, stems from two consecutive quarters of negative GDP growth. With the BOJ unlikely to give any attention to normal monetary policy in 2015, the BOJ will likely be an afterthought for the world’s central bankers this coming year.

Bank of Japan

Bank of England (BOE)

Akin to the Fed, the BOE has been quite active at expanded its balance sheet during the financial crisis. Additionally, the BOE has been implementing loose monetary policy since September 2008.

With no indications out of BOE that rates are to rise any time soon, BOE’s monetary policy situation is unlikely to garner much attention in 2015, barring any surprises.

Bank of England


Of the six major central banks, the Central Bank of Russia has raised rates significantly recently, with its main policy rate rising from 5.5% in February 2014 to 8% currently. The rise, of course, stems largely from a concern about foreign capital flight due to the situation between the Eastern power and Ukraine.

The question with Russia is – how much might does it want to employ in dealing with western aggression?


Contrasting the Six Central Banks

Which of these 6 central banks are most likely to cause the  most heartburn for the world’s central bankers?

Of the 6 mentioned, only two are even considering raising interest rates – Russia and the U.S.  Which is most concerning? This subjective question, of course, has no answer.

On the one hand, the U.S. is the second largest global economy with the most used currency on the globe.  Any mistakes from Federal Reserve bankers could send the U.S. into a recession, or at least weaken the mighty power akin to the weakness the European economies are experiencing.

On the other hand, Russian policy could severely weaken European growth (simultaneously hurting itself, of course).  The ruble is nowhere near as powerful as the dollar, placing greater weight on American policy when viewing the question through this lens.

Overall, the answer to the question is left to the reader.


The global economy will enter 2015 with an elevated level of uncertainty about the strength of the global economies. If things go according to indications out of the central bankers right now, it may very well be the Americans that make investment bankers the most displeased, although the Russians certainly have a say as well.

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