The business of banking has become tougher in the last few years. Rising interest rates mean banks have to pay depositors more interest, and many banks have a lot of risky loans on their balance sheets — especially commercial real estate loans.
But big banks have other lines of business that’ve been doing well lately. Like investment banking.
If a corporation wants to raise a bunch of money by selling stock or issuing bonds, it might call up someone like Drew Pascarella, who spent 10 years as an investment banker at Citi, covering the technology, media and telecom sector. He now teaches finance at Cornell University.
He said investment bankers help companies find buyers for those stocks and bonds and help companies purchase other companies or be purchased themselves.
“So there’s lots of different flavors, but an investment bank would help a company think through those merger and acquisition transactions and help them actually effect those transactions in the market,” Pascarella said.
And they charge fees for doing all of that. But until the end of last year, investment bankers’ phones were pretty quiet.
Steve Biggar, a bank analyst at Argus Research, said that last year, corporations were kind of nervous about doing deals. When the economy is uncertain, firms tend to pull back.
“You say, ‘I don’t want to do any expansions, maybe now is not the time, I want to see how everything shakes out in the economy, and are we going to get this soft landing?’ and so forth,” he said.
Companies are also facing higher interest rates and greater regulatory scrutiny. But Christina Sautter, a law professor at Southern Methodist University, said by now, companies have adapted to those challenges.
“Since they’re getting more used to it, they’re more inclined to do deals when they feel like they should or must do deals,” she said.
Monday morning, Goldman Sachs reported that investment-banking revenue was up 32% last quarter compared to the same time a year ago.
Gerard Cassidy, a bank analyst at RBC Capital Markets, said it helps that the economy this year is more certain than it was in 2023.
So corporate dealmakers and investment bankers are likely to stay busy. “More companies are in the pipeline to go public. More mergers and acquisitions are likely to take place this year, which also will drive investment-banking fees,” he said.
Put another way, if investment bankers are getting a lot of calls, Cassidy said, the economy’s probably looking pretty good.
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Standard Chartered has made a number of changes to its leadership team.
The British banking giant announced Tuesday (March 11) that it had appointed Roberto Hoornweg, head of financial markets, and Sunil Kaushal, regional CEO for Africa and the Middle East, to serve as co-heads of corporate and investment banking.
They replace Simon Cooper, who had held the job since 2018 and is leaving Standard Chartered to “pursue other interests,” the bank said Tuesday in announcing a broader series of changes to its executive team.
“These changes will ensure we have the strongest possible team in place, with clear accountabilities, to drive our transformation efforts and bring renewed intensity to our focus on increased growth and returns through each of our business lines,” CEO Bill Winters said.
In addition to the investment banking appointments, the company has also given Judy Hsu — its CEO for consumer, private and business banking — responsibility for greater China and the north Asia markets.
Ben Hung, currently the bank’s CEO for Asia, will take on the new role of president, while human resources head Tanuj Kapilashrami, will assume the newly-created position of chief strategy and talented officer, the announcement said.
A report by Reuters notes that sources say the shake-up marks Winters’ last push to revitalize Standard Chartered’s talent amid China’s weak economic outlook. The report also said the moves were a surprise, and that Cooper had been considered a possible successor for the CEO.
The moves follow similar changes made by JPMorgan Chase earlier this year to its leadership and organizational structure.
“The senior management changes and new alignments announced today will help the company serve clients even better as well as further develop the company’s most senior leaders,” the bank said in January.
Among the changes is the combination of JPMorgan’s major wholesale businesses of Global Investment Banking, Commercial Banking, Corporate Banking, and Markets, Securities Services and Global Payments in an expanded Commercial & Investment Bank.
“Combining these efforts will enhance and deepen the way the company can seamlessly deliver the world’s most complete set of wholesale banking products and solutions,” the bank said.
Elsewhere in the banking space, HSBC has begun efforts to hire around 50 more commercial bankers as it steps up lending to tech and healthcare startups.
“There’s this void in the market and we’re jumping into it,” Wyatt Crowell, head of U.S. commercial banking for HSBC, told Reuters. “It’s gone way better than I thought it was going to go, both in terms of the volume of deals and our win rate on the deals.”
CRB Group, parent to Cross River Bank in Fort Lee, New Jersey, announced Monday that it would begin offering investment banking services to fintechs.
The company characterized the move as “doubling down on its commitment to serving the fintech community.”
To lead the effort, Cross River has hired two industry veterans to serve as coheads of investment banking, Benjamin Samuesl from Morgan Staney and Henry Pinnell from SVB Securities. Samuels had served as Morgan Stanley’s cohead of alternative capital solutions. Pinnell led fintech investment banking for SVB Securities, which was a subsidiary of the new defunct SVB Financial Group.
“We are proud to launch our investment banking division of our broker-dealer with two well-respected professionals, combining decades of experience in both the fintech industry and capital markets,” Gilles Gade, Cross River’s founder and CEO, said Monday in a press release. “Ben and Henry are tasked with enhancing even further our product offering to our fintech partners and beyond, enabling us to solve the distinct needs of each and every client.”
Gade began his career as an investment banker at Bear Stearns. From 2000 to 2005, Gade served as managing director at Chela Partners, a boutique investment banking house in New York that focused on the emerging technology and telecommunications sectors.
Samuels and Pinnell will work out of a second CRB Group subsidiary, CRB Securities. Their arrival signals a significant expansion. Prior to Cross River unveiling its investment banking strategy, CRB Securities focused on private placement transactions, including asset-backed securities. Now, strategic advice on mergers and acquisitions, capital markets and other corporate finance matters is being added to the menu.
The $8.7 billion-asset Cross River Bank has been an active lender and supporter of fintechs. In December, Cross River announced a $150 million credit facility to support a flexible rent product developed by Best Egg that permits renters to break their payment into smaller payments aligned more closely with their cash flows. Cross River is also working on a
Cross River has been serving fintech clients for nearly 15 years, providing a platform that offers both lending and payment services. While Cross River has aspired to be a one-stop shop for fintechs, it’s a relative latecomer to investment banking. A number of established firms have groups dedicated to serving fintechs’ capital needs, while at least one, San Francisco-based Financial Technology Partners, founded in 2002, focuses exclusively on the fintech space.
Steve McLaughlin, Financial Technology Partners’ founder, CEO and managing partner, wrote Monday in an email that he was well-acquainted with Gade and Cross River, which has been a “super happy client” of FTP in the past. McLaughlin is less familiar with Cross River’s new investment banking foray, though he added the fintech space “has room for plenty of bankers.”
Monday’s investment banking announcement comes approximately a year after the Federal Deposit Insurance Corp.
Cross River was also included among a group of prolific Paycheck Protection Program lenders the Small Business Administration
Even with the enhanced regulatory scrutiny, Gade remains committed to Cross River’s business model. Indeed, at an industry event in October, Gade predicted 2024 would be a banner year for fintechs.
Cross River had not responded to a request for comment at deadline.
HSBC’s global banking and markets unit jumped 8% last year as the UK lender increased fees from dealmaking and maintained trading revenue in most asset classes.
The UK lender posted revenue of $16.1bn for its global banking and markets unit last year, according to its annual accounts. Fees from capital markets and M&A work surged 36%, with HSBC’s investment bank benefiting from a resurgence in debt underwriting revenue.
HSBC’s pre-tax profit of $30.3bn for 2023 was a record for the bank and an increase of 78%, but still below the $34bn expected by analysts. In a statement, chief executive Noel Quinn said that the results “reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment.”
HSBC finished 16th in the investment banking fee league tables last year, according to data provider Dealogic, with 1.3% share of the market. This is up from 17th a year earlier.
The UK lender’s markets and securities services business posted revenue of $9bn, which was largely in line with 2022. However, equity trading fees of $552m were nearly half of the $1bn it earned in the unit in 2022.
HSBC’s GBM business dipped 4% in the final quarter of the year to $3.7bn.
READ HSBC hikes bonuses to $771,700 for its top investment bankers
HSBC has bolstered its UK investment bank over the past year, hiring two senior dealmakers for corporate broking in July, but faces stiff competition from Barclays, which is aiming to consolidate its first place finish in the UK dealmaking fee league tables last year. In recent months, hires within its investment bank have focused on its core markets of China and the Middle East.
Investment banks have struggled against an ongoing drought in deals, with Wall Street banks and Europeans alike posting sharp declines in M&A fees in 2023. UK rival Barclays unveiled a 12% decline in investment banking fees for 2023, led by a 23% slump in revenue from M&A work.
Barclays also unveiled its first investor day since 2014, separating its business into five key units including separating its investment bank from its corporate bank. While the UK lender will look to reduce its reliance on its investment bank, it is not pulling back and within its dealmaking team intends to shift the balance away from debt underwriting to do more M&A and equity capital markets work.
Deutsche Bank’s origination and advisory business was up by 25% in 2023, buoyed by a rebound in debt capital markets activity as its M&A unit slipped 25%. A hiring spree of 50 managing directors at the German lender last year aims to shift the balance of its investment bank towards more M&A and equity capital markets work.
To contact the author of this story with feedback or news, email Paul Clarke
The biggest Wall Street banks cut 30,000 jobs last year, kicked off by Goldman Sachs who informed its staff of plans to make its deepest reductions since the 2008 financial crisis shortly after Christmas 2022.
Goldman’s 3,200 job cuts were swiftly followed by 3,500 at Morgan Stanley, and then 5,000 at Citigroup. Bank of America refrained from deep redundancies, but 4,000 employees departed regardless through its ‘natural attrition’ approach last year.
With the exception of Credit Suisse, which started cutting thousands of roles before being acquired by its biggest rival UBS in March, European banks refrained from deep redundancies last year.
Times have changed.
Whether it’s an attempt to revive a flagging share price, free up funds for buybacks, the march of technology, strategic overhauls or simply reining in costs, top European banks are cutting jobs and reducing bonuses for those that remain.
READ ‘Doughnuts’ loom: Bankers brace for brutal bonus season
“It’s a balancing act for a lot of European banks, particularly after two years of poor performance for investment banking. There’s only so long you can keep paying expensive talent in the hope that revenue will recover,” said Gary Greenwood, a bank analyst at Shore Capital.
Barclays is expected to unveil a strategic overhaul alongside its annual results on 20 February, with the UK lender looking to save £1.25bn in costs. So far, job cuts have mainly hit support functions. Deutsche Bank said that 3,500 jobs will go over the next year, largely in back office functions, as it looks to save €2.5bn after headcount swelled 6% in 2023.
Societe Generale is cutting 900 jobs within its Paris headquarters as part of new CEO Slawomir Krupa’s plans to pull back on costs, while UBS has earmarked around $6.5bn in employee expenses to be stripped out as it integrates Credit Suisse.
On a smaller scale, Rothschild cut around 10 investment banking jobs in January, with former Goldman dealmaker John Brennan departing.
“The US banks are much more reactive in terms of cutting headcount than their European counterparts,” said Stephane Rambosson, co-founder of headhunters Vici Advisory. “European banks are now focused on costs, but each case is specific to their circumstances rather than market conditions. Wall Street banks are also quicker to hire again when the tide turns.”
As well as job cuts, bankers are enduring another brutal bonus round. There is widespread disgruntlement at UBS as the bank spread an already small pool around its existing employees, the influx of Credit Suisse staff and a flurry of senior Barclays dealmakers brought in last year on guarantees, according to bankers.
Barclays has handed zero bonuses to up to a third of dealmakers in some units, bankers told Financial News, with Bloomberg previously reporting that “dozens” of employees were set for doughnuts this year. Deutsche Bank, which also has to digest an expensive hiring spree and its £410m acquisition of City broker Numis, is also set to reduce bonus payments.
READ Investment banks face talent crunch even after deep job cuts
“We have observed a similar, but even more aggressive, trend with the European banks regarding layoffs and bonus pool reductions,” said Chris Connors of Wall Street compensation consultants Johnson Associates. “The European banks have struggled to keep pace with their American counterparts on business results and compensation. From the employee perspective, we anticipate European bankers to be similarly disappointed to US bankers given the muted results in advisory and other units such as underwriting, which are still well below 2021 levels.”
While US banks cut dozens of dealmakers last year, some European players took advantage of the dislocation. Deutsche hired 50 senior bankers, while Santander picked up dealmakers from both the fallout from Credit Suisse’s takeover and from Goldman Sachs and Morgan Stanley.
Most cuts so far at European banks have focused on management or back office functions, and there’s little suggestion that deep investment banker redundancies are on the cards, particularly as banks prepare for a revival in dealmaking activity after a near two-year lull. However, headhunters told FN that many banks were taking a much more cautious approach about bringing in senior talent.
During its fourth quarter earnings call, Deutsche Bank chief executive, Christian Sewing said that the bank had “positioned ourselves for a recovery in origination and advisory” after its hiring spree. “Now, this is where we see considerable growth potential,” he added.
“Investment banking is a people business, so banks will be reluctant to let too much talent depart,” added Greenwood. “This could change — a recovery is possible, but there are still a lot of risks in the market.”
To contact the author of this story with feedback or news, email Paul Clarke
Financial services firms have been cutting jobs for the past year, with no signs of letting up.
Banks, asset managers and consultancies have all cut swathes of jobs in recent months.
City jobs dried up in the last quarter of 2023, with the number of available financial services roles falling 42% compared with the fourth quarter of 2022, according to Morgan McKinley’s London Employment Monitor.
During the post-pandemic deal boom many major finance firms went on hiring sprees, which left them overstaffed, and a slower job market has meant that fewer of those staff moved on.
READ Bankers, lawyers and accountants won’t quit, stoking fears of more job cuts
Morgan Stanley and PwC both pointed to lower staff attrition rates as part of their motivation for cutting jobs.
Banks have been characteristically brutal in their job cuts, and major disruption such as the merger of UBS with Credit Suisse and Citigroup’s radical overhaul are set to lead to thousands of roles going.
In recent months banks have been followed by asset managers, which are shedding jobs in a tough climate for active fund houses too.
Consultancy and accountancy firms have also cut thousands of jobs as demand for deal advice dries up in a slower market.
These are the banks, consultancy firms and asset managers cutting jobs:
Banks
UBS expects half of planned $13bn cost-cuts to come from employees
UBS rolls out fresh layoffs as Credit Suisse integration continues
Citigroup to cut 20,000 roles in Jane Fraser’s radical overhaul
Citigroup offers generous redundancy package to laid-off UK bankers
Barclays cut 5,000 jobs last year in cost-reduction push
Deutsche Bank to cut 3,500 more jobs in cost-cutting push
Nomura cuts 60 investment bank jobs in difficult dealmaking conditions
Societe Generale to axe 900 jobs in France
Rothschild-owned Redburn Atlantic cuts 20 staff amid UK equity drought
Asset managers
BlackRock to cull 600 jobs as it eyes ‘opportunities for growth’
Abrdn outflows top £12bn as group prepares to cut 500 jobs
Baillie Gifford to cut jobs after fixed income overhaul
Consultancy
EY launches fresh round of UK job cuts
EY is laying off US partners amid tough economic conditions
Deloitte UK to axe 100 jobs amid slow deals market
To contact the author of this story with feedback or news, email James Booth
- Basel III pullbacks could improve the bottom line of investment banks
- It is hard to see if M&A activity will pick up
- A Republican victory could improve sentiment for Wall Street giants
Some US politicians have invoked the concept of America being the “indispensable nation”. That phrase could be tweaked slightly when applied to Wall Street, which could be said to have the world’s “indispensable banks”.
What they do certainly matters — as everyone discovered in the 2008 financial crisis. And while the world’s largest banks are now to be found in China, one overwhelming fact remains: Wall Street sits in the largest capital market in the world.
Last year was certainly not great for US banks in terms of fees and business activity compared to 2021. The Covid-19 pandemic was a boom time by comparison.
Dealogic’s US investment bank rankings by revenue for the full year 2023 show how firms finished from top to bottom: JPMorgan Chase, Goldman Sachs, BofA Securities, Morgan Stanley, Citi, Wells Fargo, Barclays, Jefferies, Centerview Partners and RBC Capital Markets.
There are hopes that 2024 will be different, and analysts will be closely watching Q4 2023 results from large banks for any clues.
Bank of America (BoA), JPMorgan Chase, Citi and Wells Fargo will publish their results on January 12, while Goldman Sachs and Morgan Stanley publish on 16 January.
Two good primers for what to expect from these banks, alongside Citi, over the course of the year come from recent studies published by HSBC and BoA’s global research.
The big picture
BoA and HSBC analysts think that the most advantageous and likely development for Wall Street in 2024 could be changes to the Basel III endgame rules. These were a prominent theme at the Financial Times’ and The Banker’s Global Banking Summit last November.
In a note published January 8, HSBC writes it is “incrementally positive” on US banks with moderating deposit cost pressure that should help net interest income bottom in H1 2024. And a softening of the Basel III endgame proposals could allow for more share buybacks in 2025.
Bankers have criticised Basel III as too onerous and argued they impose additional costs on direct lending and capital markets activity. Some have gone further, like Evgueni Ivantsov, chairman of the European Risk Management Council, who wrote that capital buffers have diminishing returns above a certain level.
According to BoA research notes published on January 4, there is a real chance there will be meaningful changes to the proposed policies. It points out that the lack of consensus at the Federal Reserve, pushback in Congress and upcoming US presidential elections should incentivise regulators to soften the rules.
“In our view, the current proposal doesn’t fully account for risks that could be created by reduced profitability and lending moving outside of the regulated banking entities,” it says.
BoA thinks the outcome of the November election could help drive an increase in share buybacks, put a floor under bank stock and help create a more favourable climate for mergers and acquisitions.
On the other hand, there are features of the macro picture that are less positive: uncertainty arising from geopolitics and possible rate cuts.
Whether private credit will disintermediate banks is another story that is still unfolding. Certain banks are exploring a partnership model where private debt combines with the origination capabilities of the banks.
This is done in a way that loans are not carried on the bank balance sheet, but banks continue to manage the client relationship, including providing additional banking services such as treasury management, deposits, and FX.
“We note that while this sounds good on paper, [it is] early days yet to conclude whether private debt and banks can enjoy a symbiotic relationship on a lasting basis given competing priorities,” BoA says.
It also points out that larger banks are better positioned to compete in the space via their asset management branches that compete against alternative asset managers in fund-raising activity.
Here, it is more likely that banks offload non-core lending portfolios such as indirect consumer loans instead of getting outgunned on middle market lending to businesses that require a full suite of banking services.
BoA cites numbers that evidence how much US investment banks have been undercut by private credit firms. Market capitalisation of the five largest alternative asset managers has grown by +500% to $360bn over the last five years vs growth of +22% to $1300bn for the five largest US banks. This highlights the shifting power dynamics on Wall Street in the aftermath of the financial crisis and the Dodd Frank rules. So, how will the large US banks fare in 2024?
Regaining focus
Goldman Sachs and Citi are going through a period of transition as both aim to refocus their services on core propositions. According to BoA research, chief executive David Solomon appears to have “weathered the storm” at Goldman Sachs during the past couple of years.
That came from a slump in investment banking, an underperforming consumer business and asset write downs. Mr Solomon’s decision to pull back from the consumer pivot and double down on the bank’s traditional strength — capital markets — means that the bulk of revenues are dependent on investment banking and trading. Other parts of the franchise such as Goldman Sachs’ asset management division and private bank remain an afterthought when considered by the market overall.
HSBC says that it remains positive on Goldman Sachs as improved investment banking revenue and the reconfiguration of the asset management business should drive profitability expansion in the coming years. Also, any recovery in capital markets should be favourable for Goldman Sachs.
Citi, under the leadership of Jane Fraser, is seen as the most compelling risk/reward in the large-cap banks space. BoA outlines three drivers that should help underpin Citi’s performance this year: a potential increase in share buybacks during the second half of the 2024; watered down Basel III reforms proposals that should support management to achieve profitability targets; and the likelihood of a soft landing for the US economy.
It adds that changes instituted by Ms Fraser, such as streamlining the bank’s structure, exiting lower return businesses and external hires, are a significant departure from anything “attempted under prior CEOs over the last two decades”.
HSBC is also bullish on Citi, upgrading it from ‘hold’ to ‘buy’, and says that it will disproportionately benefit from any watering down of the Basel III rules. That is because it would face a capital shortfall under current proposals but would be able to do more share buybacks if the rules are softer.
The leaders
BoA sees Wells Fargo, Morgan Stanley and JPMorgan Chase as being in the strongest position strategy-wise.
It is a big year for Morgan Stanley, where the new leadership of CEO Ted Pick will determine how the bank’s year unfolds. Mr Pick took over from James Gorman last October, and analysts are looking to see if there will be any changes in the firm’s objectives.
BoA highlights that its business model “is relatively nascent” and needs to “prove its resilience” over the long term. It says that Mr Gorman has recently talked about Morgan Stanley’s desire to expand the bank’s wealth management proposition outside the US through mergers and acquisitions, combined with organic growth.
“We expect to see some action on this front as Morgan Stanley goes head-to-head with the likes of UBS, Julius Baer, and HSBC to tap into the rapidly growing wealth management wallet, especially in Asia (Middle East, India, Japan),” BoA says.
HSBC observes that Morgan Stanley is also well positioned to benefit from a reduction in Basel III compliance. It points out that risk-weighted assets could increase by around 40% under the implementation of the current regime — more than any other bank.
Regarding Wells Fargo, BoA flags its “significant progress” under the current leadership to not only address past regulatory issues but also make investments to grow market share in various sectors. These include wealth, cards, capital markets and digital banking.
The most important trigger for the bank to surge upwards is the removal of the asset cap imposed by the Federal Reserve back in 2018. This was done in response to a fake accounts scandal in 2016 that saw the bank create bogus customer accounts to help meet aggressive sale targets.
The removal of the cap could happen before the end of 2025, but not this year given the US election.
HSBC continues to have a ‘buy’ rating for BoA due to credit and cost discipline, falling risks from deposit cost pressure, and a comparatively attractive valuation.
JPMorgan Chase is seen as the frontrunner among the US investment banks with the only wildcard factor being when chairman and CEO Jamie Dimon chooses to step down.
With the investment bank results to be published over the following week, it will be fascinating to see how the year plays out for Wall Street.