A new phrase is in circulation to describe the current state of the investment banking business: a 'war of attrition.' Bloomberg first suggested it a few weeks ago. Now research and strategy firm Tricumen has picked up on it. Fundamentally the war of attrition means this: in a shrinking market which can't sustain every player, it's about holding on for as long as possible in the hope that rivals drop out first. It doesn't bode well for non-core jobs; it doesn't bode well for pay.
In the medium term, says Tricumen, all banks face a similar challenge: achieving a return on equity (RoE) greater than their cost of equity (CoE). Even leading banks are unlikely to be able to achieve much in excess of 16% RoE for 2012 in their markets divisions - only marginally above their CoE.
Returns and attrition not withstanding, Tricumen thinks there are areas of investment banking businesses which look solid in the medium term. Moreover, as markets grow it maintains that competition in some of these areas is actually decreasing. Conversely, jobs in areas where markets are shrinking and competition is increasing are probably to be avoided at all costs (cash equity 'high-touch' derivatives in particular).