Goldman Sachs Group Inc is about to cut more bankers after sacking thousands in January. Morgan Stanley and others have also ditched thousands, while hundreds of Credit Suisse Group AG’s people are just leaving of their own accord, expecting the worst from its rescue takeover by UBS AG. The two Swiss groups are even offering $30,000 cash to new junior bankers who agree to delay their start dates until next year, according to reports.
Deutsche Bank AG is hiring, but only expanding its mergers and acquisitions teams by about 50 bankers and that’s because it didn’t grow its ranks significantly during the dealmaking boom of late 2020 and 2021.
In short, it’s been a miserable spell in investment banking and if anything, it might only get more grim. Yes, the debt ceiling standoff is over, the US banking crisis has been calmed and interest rates in western countries are nearing their peaks, but bankers from New York to Paris are struggling to get clients to do anything interesting at all.
Top executives are talking about tougher times to come and that’s why more jobs are set to go. “Feels like we are going to have a contractionary environment for a period of time,” said Goldman Sachs’s President, John Waldron on Thursday, when outlining the bank’s next round of cuts at a conference organised by Alliance Bernstein.
Deal volumes have slumped across their most lucrative businesses as corporate executives have sat tight since early last year, awaiting the bad news on war, inflation and volatile markets to end. Global investment banking fees in April were the lowest monthly amount seen in the past decade, Viswas Raghavan, co-head of JPMorgan Chase & Co’s global investment and corporate bank, told shareholders at the US bank’s investor day in May.
Across all forms of equity deals, including convertible bonds, rights issues and secondary offerings, volumes are also at decade lows for both regions.
The second reason: More competition from outside the mainstream. The global investment banks collectively lost market share last year to Chinese banks capturing most local stock market listings — one of the few businesses that has been booming anywhere in the world — and to smaller firms, known as boutiques, that won a growing share of M&A fees.
And there’s more bad news for bankers in that the trading bonanza of last year is deflating, too. Daniel Pinto, JPMorgan’s chief operating officer and de facto number-two to Chief Executive Officer Jamie Dimon told the bank’s investor day that second-quarter revenue from stock and bond trading was likely to be down 15 percent versus the same period last year. On Thursday, Goldman’s Waldron estimated its trading revenue would be more than 25% lower this quarter versus last year.
With many US and European companies still sitting on comforting piles of spare cash, improved profit margins or both, the chances of a deep recession and sharp rise in unemployment still seem relatively low. For once, it is the bankers who look like they’re having a worse time. Those juniors being offered $30k to stay at home might want to just enjoy an extended summer break – and then go looking for a different industry to join.
Paul J Davies is a Bloomberg Opinion columnist covering banking and finance. Views are personal and do not represent the stand of this publication.
Credit: Bloomberg
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