The following statement will come as no surprise to anyone working in an investment bank today – there are no safe harbours, no business is doing well and headcount is heading down, primarily in the fixed income currencies and commodities divisions.
The latest quarterly insight into investment banking revenues from research firm Coalition does not paint a pretty picture. Across the industry, earnings were down by 25%, with fixed income (-28%) and IBD (-25%) the worst affected areas. And yet, relatively speaking, some sectors did OK. This is what you should know.
Let’s just take in this chart below for a second. In the last five years 8,800 people have disappeared from FICC. 2,600 equity traders have gone and there are 2,900 fewer people working across IBD. In fact, 21% of total front office headcount in investment banking has been obliterated. And, every year, there have been thousands of new graduate recruits going into front office roles to keep those numbers a little more buoyant.
But considering the ongoing cost-cutting announcements, net headcount is actually quite stable this year. 500 FICC jobs have gone globally over the past three months, 100 equities jobs and IBD headcount hasn't diminished at all.
Rates revenues held up comparatively well (down 8% year on year), but were still less than half of what they were four years ago. America and Japan were the driving forces behind this relative buoyancy, but teams in EMEA still struggled.
Credit is a shadow of its former self, with distressed debt and collateralized loan obligations (CLO) performing particularly badly. Investment grade debt improved, however.
Similarly, commodities revenues remain in the doldrums, but precious metals teams had a much-improved first quarter.
The one bright spot in the broader equities divisions of investment banks was futures and options trading – which has generated only around $1bn in revenues in the first quarter for the past five years. Here, it was activity in the U.S. that spurred growth. And, while cash equities revenues slipped 16% of Q1 2015, low touch products in the Americas performed well while EMEA and Asian revenues tumbled.
M&A bankers’ star has dimmed, but an 8% decline in revenues when 2015 was particularly good doesn’t seem too damning, even if big deals have been put on ice. U.S. bankers, who lead the way last year, are suffering while revenues have improved in EMEA and Asia. Financials, industrials and materials are the sectors to specialise in.
ECM has had an abysmal quarter, as was obvious from the Q1 results of all the major banks, but again it’s investment bankers in the Americas who are suffering the most. Only the energy and real estate sectors came away with any credit.
Across DCM, only investment grade has held up with high yield and leveraged finance both falling. Overall, revenues were down 18%.