Is the center of power in banks shifting?

Back in the 80's, bankers were at the top of the pyramid at investment banks. The booming economy, lower taxes and regulations, all prompted a massive M&A and IPO wave, and bankers reaped the rewards. In the late 90's Equity Research Analysts, especially those covering the hot tech sector, were making massive bonuses. In the early and mid-2000's traders ruled and became the envy of bankers.

Now, with the Volcker Rule having dismantled the high flying prop desks and Basel requirements imposing stricter limits on balance sheet risk, are we seeing another power transition? This time to asset/wealth management? It makes sense since trading is virtually dead, banking is way too cyclical, while institutional and individual clients will always need the services of money managers. The new Credit Suisse CEO for instance has said that he will shift the bank's focus towards AM. And UBS has already laid off a lot of bankers and are doubling down on AM as well.

 

Don't think that's going to be the case since Wealth Management is retail oriented whilst banking and sales/trading (albeit to a lessere extent) are at the nexus of the economy. big m&a trades, IPOs, or good hedge fund trades (which are probs executed through sell-side trading desks? actually don't know how HF trade execution works) will always make headlines which I can not envision for anything wealth management related.

also we are currently seeing a massive IPO and M&A wave and leveraged finance is also a very hot market (in europe even more so than in the US)

 

regarding your point on CS and UBS: they are simply not as strong in IBD and most areas of S&T as their US counterparts (GS MS JPM and BAML to a lesser extent); but have strong wealth management presences everywhere except the US. in asia which is a growing wealth management market both banks are particularly strong. only makes sense for these firms to shift to where their competitive advantage lies

 

i think it's all a chain reaction, each link dependent on the other to survive. AM is kicking off now but considering AM is prominent now can only mean there is more wealth to manage. the more money out there the more the pressure to provide solid returns so asset managers get on the case of CEO's to increase share prices. that means company managers are under pressure to deliver so they look for ripe targets to acquire to achieve that (some will do it organically but inorganic growth is easier for healthy companies). this in turn means bankers get busy and HF managers sit in middle making bets hoping to cash in. each group takes turns at the top and when their turn they expand their ranks and trim down when not. bottom line is that if you are at the top of your profession you make money all the time and the BB banks make money period considering they have all these things under one roof. zero sum game unless you sit at both sides of table!

"I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing. " -GG
 

"Trading is virtually dead." I lol'd.

"Banking is too cyclical." That doesn't mean its dead or dying. As the above posters have indicated, that's far from what's happening.

As for the topic of AM itself, I actually would be worried by the rise in robo investors if I worked in that industry myself. Of course, robo investing isn't even close to taking over AM, but I believe that this idea that you need human managers for passive investing (which is where the trend seems to be headed) will come into serious doubt in the future.

 
Best Response

Where do you people come up with this stuff? CS has always been strong in private banking, and their CEO is ex-Prudential plc, in hopes of continuing to beef up their private banking arm in Asia (because the dude crushed Asia at Pru plc). UBS has always had a very good wealth management division. Basically, putting more money into what they know they're good at and cutting back on what they're kinda bad at. This isn't a 'paradigm shift' or anything.

 
NESCAC:

Where do you people come up with this stuff? CS has always been strong in private banking, and their CEO is ex-Prudential plc, in hopes of continuing to beef up their private banking arm in Asia (because the dude crushed Asia at Pru plc). UBS has always had a very good wealth management division. Basically, putting more money into what they know they're good at and cutting back on what they're kinda bad at. This isn't a 'paradigm shift' or anything.

That - although CS and UBS had groups were they were not just kinda bad at - but actually really good at. The shift into PB is just making those really good groups disappearing, as you won't get paid as much for being a top group in an area of the bank no one gives a damn about. A lot of poaching has been made away from those two banks already, but they still manage to retain top market share in some markets - so props to the guys holding the fort.

 

The big shift now is that BB banks now face really intense competition from EB e.g. look at who advised the Kraft/Heinz deal. Major banks will definitely have to become more specialized to compete in the current landscape, so firms like UBS and CS which have historically been great at PWM, will probably shift their focus to their specialty and ditch the divisions where they face stiff competition. Eventually I think most banks will just put more focus on the groups that are the most successful for them and just have tiny teams to represent those that are less successful.

 

I think for the most part bankers are still the most well respected in a bank, for now at the very least given the M&A and IPO activity recently. But BBs and larger global investment banks are losing out to EBs as the most talented individuals are going to the EBs over BBs. For now, the big names at the top like Goldman haven't lost out much and I read a WSJ article a month or so ago saying UBS was looking to expand it's IBD again, though it has been contracting for some time. However, look at RBS having gutted its Securities division. It's also worth noting that many boutiques are founded by former BBs (Ken Moelis of Moelis came from UBS, Blair Effron of Centerview came from UBS and one of his partners, Stephen Crawford of Morgan Stanley).

 

What about RBS and HSBC cutting loads of jobs, particularly in their investment banking division? Do not want to sound like a smart-ass with a rhetorical question - I am genuinely interested in the future of the industry.

I wonder how many people on this board actually understand the impact of stricter regulations such as Basel III on investment banking (read: not trading) ... curious if anybody could shed some light on this or provide a reference to articles / papers on this topic.

 

I think the main thing is that RBS and HSBC were losing out to competitors in their IBD (I think JP Morgan has moved up higher in the league tables.. stealing away business from rivals), a lot of these EBs have also been stealing market share away from the large global banks. Basel III shouldn't effect IBDs too much, the main purpose of it is so that banks keep lean balance sheets and have sufficient capital as deemed by the regulators. Its why the banks get stress tested. Investment bankers don't use the banks capital unless the bank is going to finance a deal, aside from that there is no risk that an IBD poses to the entire entity... or at least that's my understanding of it

 

WM and AM are attractive lines of business for banks because they are immune to interest rate cycles and create a reoccurring revenue stream. The demographics are well positioned for WM and AM also. There is a huge wave of baby boomer retirees over the next 10-15 years and HNW households are the fastest growing demographic in the US. Robo-advisors will eat up the low end of the market, but the HNW market has complex planning needs that aren't well served by an algorithmic model. Banking changes with economic cycles and there are always opportunities to make a profit. The AM and WM space happens to be highly profitable with a great outlook.

 

Nisi aut quia debitis aut est. Sed iste et ducimus mollitia. Quas sunt qui illo velit voluptatem.

Dolores occaecati dignissimos consequuntur. Voluptas voluptates velit est alias magnam. Sit eligendi fugiat officia nesciunt corporis.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”