This year's hot banking jobs are common knowledge. They are, in no particular order, compliance, compliance, compliance, cyber-security, M&A juniors and - seemingly - real estate investment banking. But what of the not-so-hot jobs? What of the jobs that are stuck in the permafrost?
With the help of Morgan Stanley's compendium on the near future of investment banking, we've produced some candidates for the coldest jobs of the year.
1. Repo jobs
Repo desks are being squeezed, and on this basis are probably best avoided. Morgan Stanley says Europe's seven largest wholesale banks have reduced repo activities by 23% since 2012, while US banks have reduced them by 11%. As they seek to improve returns on leverage exposure and to hit higher leverage ratios, European banks are expected to reduce repo by another 10-15% in the near future and US banks are expected to reduce repo by another 5-10%.
2. Rates jobs
Rates desks aren't in a good place either. In 2014, Morgan Stanley estimates that flow rates consumed ~40% of industry capital, but generated only 5-10% of profit before tax. More cuts are coming.
3. Capital intensive jobs at Credit Suisse and Deutsche Bank especially
When Tidjane Thiam takes over from Brady Dougan at Credit Suisse, Morgan Stanley is predicting a further 25% reduction in the leverage exposure at Credit Suisse's investment bank. Deutsche Bank also has leverage issues: 70% of its leverage capital is currently devoted to the investment bank.
As Credit Suisse and Deutsche withdraw capital from their investment banks, capital-heavy jobs in fixed income trading will almost certainly suffer.
4. Most front office jobs at RBS
RBS produces the lowest return on equity of any bank in Morgan Stanley's universe. Moreover, in 2015 it's expected to be the only bank whose ROE turns negative. RBS is expected to make 80%-90% of its investment banking staff redundant in the near future. The chart below outlines the dramatic shrinkage of its investment bank.
5. Credit trading - especially in the US
Morgan Stanley is predicting that credit trading revenues will fall by up to 5% in 2015. The Fundamental Review of the Trading Book (FRTB) is expected to prompt banks to shrink their credit balance sheets by up to 15%. At the same time, rising rates and weaker spreads have the potential to drive mark to market losses, while rising US rates have the potential to reduce demand for credit products in America. QE and continued issuance should mean that credit trading remains strong in Europe though....
6. Single name CDS traders
Single name credit default swap (CDS) traders have been on a conspicuous downer ever since Deutsche Bank pulled back from single name CDS trading in October 2014. Morgan Stanley points out that single name CDS volumes have dropped more than 70% in response to regulatory pressures.
7. Spot FX traders
A high proportion of the FX spot and forward market is already trading electronically and this is likely to increase.
As the chart below shows, electronic FX trading has increased exponentially since 1998. As regulators push for increased electronic trading in the wake of the FX fixing scandal, Morgan Stanley estimates that up to 80% of the spot and forward FX market will be traded electronically in future.
8. High touch sales-trading jobs with low value clients
Now is absolutely not the time to be a salesperson whose clients don't generate generate strong returns. Following in the footsteps of Deutsche Bank, most banks are now launching 'low touch' (low cost) teams to deal with their low value clients. J.P. Morgan and Goldman Sachs are both expected to focus on high value clients, for example. If you're an expensive salesperson whose clients are marginal, your days are numbered.
9. European cash equities
Morgan Stanley says 2015 will be a bad year for European cash equities businesses. The banks' analysts cite: "Uncertain growth and deflationary pressure in Europe coupled with weaker ECM pipeline and low volatility." At the same time, unbundling of equity research commissions are expected to hit equities businesses hard.
10. CLO trading
2014 was a record year for trading collateralized loan obligations (CLOs). This could be about to change. Late in 2014, US regulators introduced the 'risk retention rule' compelling managers of CLOs to hold at least 5% of the deals they arrange on their balance sheets starting from 2016. At the same time, the CLO market is being hit by widening credit spreads. 2015 could be the year the CLO party starts to fizzle out.
11. IBD at Bank of America
Finally, if you're averse to extremely hard work at a Bank that's trying to retake lost ground, Bank of America's investment banking division (IBD) may be best avoided in 2015. As the chart below shows, BofA lost a lot of market share in 2014. Recouping those losses could entail hard work and the bank is unlikely to have the luxury of adding extra headcount - especially at the junior end.