Over the past five years, nearly 7,000 front office investment banking jobs have disappeared. The majority of these cuts have been in the fixed income currencies and commodities (FICC) divisions. And, despite a decent second half in 2016, recruitment is unlikely to return any time soon.
Last year, overall headcount across banks’ FICC divisions decreased by 7%, according to new figures from research firm Coalition, or 1,300 people. In total, the top 12 investment banks cut 2,200 staff last year, up from a mere 800 in 2015.
FICC revenues have been the big drag for investment banks over the past five years, but they were up by 9% year on year in 2016, and there were big gains in rates (26%) and credit (20%). Factor in that FICC teams’ revenues were up 37% in the second half and continued cuts seems a little harsh.
Longer term, lay offs have slowed compared to five years' ago, but they haven't stopped, even now - Deutsche Bank laid off 150 people in its fixed income division only yesterday. There’s one good reason why investment banks are reluctant to hire more in FICC – productivity.
Investment banks are cutting heads on the trading floor, but those that remain are more productive. Higher revenues helped, of course, but banks seem to be getting by with fewer staff even during busier times.
We’ve been here before. During Morgan Stanley’s Q3 conference call last year, James Gorman praised positive FICC revenues, but said: “What I’m most pleased about is that we did it with 25% less people.” In other words, banks are happy to do more with less.
Investment banks are continuing to squeeze their fixed income markets staff because, simply, they can now. Juniorisation means that banks can get away with paying relatively inexperienced staff less - and some believe trading is a young man's game anyway. Meanwhile, automation means banks simply need fewer people and an uptick in revenues is unlikely to counter this trend. Then there's capital costs - banks generally can't afford to allocate more capital to their trading businesses.
However, despite it all, here’s where Coalition’s analysis suggests you should work in banking now.
As mentioned, FICC divisions are still getting trimmed back. However, within this, rates stood out as the best performing division. Coalition suggests that sterling underlying products and structured rates – driven by high demand for US structured notes from Asian clients – were particularly strong.
In credit, which also had a good 2016, investment grade credit led the way, with distressed and structured credit still suffering. The only other positive was within securitisation - specifically an uptick in agency RMBS trading.
Most banks have posted poor results in their equities divisions, but Coalition suggests it’s particularly bad in Asia and EMEA. Large investment banks spent the first half of last year cutting back their Asian cash equities business – or pulling out altogether – and Nomura took the extreme decision to close its European equities business early last year.
Both cash equities and equity derivatives revenues suffered last year, but it was the trading desks in Asia and EMEA which led the declines in both business areas.
Is there a good place to be? Sort of. Low touch trading revenues within cash equities in the Americas stood up thanks to stable demand from hedge fund clients.
ECM was brutal, but there are some safe spots
It’s not news to say that equity capital markets suffered last year. While most advisory roles in investment banking were stable last year, ECM suffered a brutal 35% decline. EMEA IPOs took the main hit, suggests Coalition, but there were some sectors that held up – real estate, basic materials and energy were the places to be.
Investment bankers working in UK M&A were the most impacted by macro events – ie Brexit – which hit deal flow. Technology and utilities were the best performing sectors.
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