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There's a megathread on this forum that talks about Analyst salary bumps at a lot of major banks (BB, EB), etc. I've also read about and heard of banks hiring more Analysts
I'm guessing he means in the context of the actual work going on in the industry, a la being prepared for an interview question along this line. Is that what you meant OP?
If so, obviously a lot of healthcare deals recently, as well as tax inversions - many healthcare related themselves. Just one recent trend.
You can read mergermarket for more news deal-wise. I'd agree with the above regarding healthcare deals & tax inversions ^
I'd say the talent attraction issue is one, online news love to keep commenting on how HYWS grads are no longer heading into finance. Could mention how banks are countering this though.
Yes, in terms of an interview. What points do you think a candidate should bring up if interviewing for a SA position?
Yes, in terms of an interview. What points do you think a candidate should bring up if interviewing for a SA position?
Guess it depends where you are doing the interview. While not necessarily new, you have independent advisory shops continuing to rise. Probably wouldn't bring this up in a BB interview though. You have the BBs getting more regulated with respect to their capital commitments. Trading continues to take a hit especially in FICC. That is probably enough to get you started.
Off the top of my head:
Look into the US regulatory focus on LBO leverage ratios and the flow on impact to PE-sponsor LBO activity eg FDIC scrutiny and the 'guidance' on 6x EBITDA cap. This impacts IBs' DCM business, which is often a product used to grow relationships for non-balance sheet fees. Bloomberg and other news sources pop up an article on that topic every 3-4 weeks.
Also look into the general post-GFC focus on capital, the increased requirements to hold capital against balance sheet commitments and the impact that has had on merchant capital activities due to a need to generate higher profits to meet return on regulatory capital hurdles.
Volcker Rule, Dodd-Frank and the ongoing impact those are having on how investment banking used to be done vs how it needs to be done today.
Look into some of the press on why banks like Barclays have been winding down their IB activities.
Inversion died 3-4 weeks after some regulatory changes. More strategic activities compared to sponsor (rich valuation). Activist investor driven moves. Spin-offs. M&A target going out and acquiring someone else, killing the original M&A or other way around (acquirer getting acquired by someone bigger).
why is it that there's more strategic activities compared to sponsor? I know that synergies = richer valuation for strategic acquirers but with access to cheap debt and a trillion dollars of dry powder expiring soon for PE firms, I would've thought that sponsor activity should be on the rise?
Because sponsors are primarily concerned w/ hitting a targeted IRR and CoC (remember an LBO is a "price floor" valuation). Since companies are on the rise and performing better, valuations have been going up, forcing PE firms to compete and overbid on companies - the exact opposite of what PE firms want to do. Strategic acquirers can afford to pay higher valuations b/c they can bank on their synergies and they're not looking to "exit" within a 3-5 yr timespan to appease their limiteds. So long story short, PE firms are "getting priced out"
http :// digital. mergermarketgroup. com/ session/ top-10-ma-deal-trends-of-2014/ (delete spaces)
I know it's a bit long but highly informative.
Few different reasons: 1. Overall market valuation is just much higher (e.g. S&P all time high or something) and might be tougher for sponsors to get their target return 2. Strategics are comfortable in buying and they can always bid more than sponsors (reasoning here: http://online.wsj.com/articles/deal-boom-feeds-on-surging-stocks-141627…) 3. Even though rates are low, risky financing is limited (Dealbook had bunch of articles on this recently. This covers it pretty well too: http://online.wsj.com/articles/regulators-clarification-still-sows-bank…) 4. Not a lot of good companies to buy? There were some article a while back on how companies are changing hands between PE funds
thanks guys. so if that's the case why would a target ever choose a sponsor over a strategic buyer? wouldn't a seller be more inclined to go towards the higher valuation? could one reason be that sponsors generally want to keep management around for a few years unlike strategic buyers who would rather integrate the seller into their preexisting business model?
You're correct. Sponsors see the senior management team of selling companies as "operators" with years and years of specialized knowledge and experience in that field and like to team up with them on most occasions (in my experience this goes for MM PE firms). So, to answer your question, it all boils down to what the seller wants. If the CEO of the target company wants to sell it all and play golf for the rest of his/her life, the better option would be a strategic buyer. However, if the CEO has family/friends as part of the senior management team and wants to stay on board and help and watch his company grow, then he/she should decide on a financial sponsor.
awesome. that really helped.
Investment banks face bleak future according to McKinsey (Originally Posted: 08/31/2011)
"INVESTMENT banks face a fight for survival as returns and revenues shrink, according to two reports released today.
A study by McKinsey & Co claims that investment banks are heading for a “day of reckoning” that will see many firms fall by the wayside. And figures compiled by data provider Dealogic show that European revenues from primary advisory business have slumped to a 14-year low.
Data for primary business deals announced in August 2011 – such as advice on mergers and acquisitions, floats and debt sales – show revenues fell to just $546m (£334.8m) in Europe. The last time they were lower was in August 1997, when they hit $474m, whereas last August banks netted $935m.
The dire numbers coincide with McKinsey’s assessment that, without drastic action, investment banks’ returns on equity will drop to just seven per cent from a current average of 20 per cent. That is below McKinsey’s nine to 11 per cent estimate of the cost of equity, making most banks non-viable as businesses if they fail to take action.
New capital requirements from Basel III will be responsible for three quarters of the hit to returns, McKinsey claims. Worse still, it did not model the additional effect from unilateral measures such as the UK’s bank levy or proposals by the Independent Commission on Banking (ICB). With mitigating actions, such as shutting down chunks of their business, altering pay schemes and hiking prices, McKinsey says banks should be able to push returns up to 11-12 per cent and, with successful overhauls of business models, to 12-14 per cent. But the study warns that the decline in trading volumes that has seen banks lay off thousands of workers “will be exacerbated by regulation, especially in structured credit and rates”. The knock-on effect will see the cost of financial services and credit rise for businesses, as banks pass on some of the costs of regulation.
McKinsey adds that banks’ fixed income, commodity and currency (FICC) divisions and structured credit will be worst hit. Some products like collateralised debt obligations (CDOs) “may even cease to exist” while others will see a “six-fold increase in capital requirements”, potentially making them unprofitable. The charge for counterparty risk could rise by a factor of 2.5, McKinsey suggests, for trading unusual over-the-counter (OTC) derivatives that cannot be cleared by central clearing houses.
Source: http://www.cityam.com/news-and-analysis/investment-banks-face-bleak-fut…
Wouldn't be the worst thing to happen.
Someone is upset that they are in consulting.
Lol haha
sb
Pretty impressed one black man can destroy an entire industry with a stroke of the pen!
because the market was under-pressure on Aug 1997, so as current market situation. Something needs to be changed and the profit will go back up
The future of investment banking has been "bleak" for the past four years...
They base this off one month of data, a historically slow month for deals, in an uncharacteristically volatile period? There is nothing new here...we all know about Basel and we all know that traders at banks are getting their balls chopped off.
Banks have been expecting this for a while, hence why half of your coworkers have been laid off and your analyst program is 1/3 the size it was in 2007. We saw the same thing happen after the Great Crash as risk-appetite got taken off the table. This finally culminated with Glass-Steagall which created the FDIC but stipulated that insured banks stay out of the capital markets. It also allowed the Fed to set bank savings account rates (which it fixed at 4% for the next fifty years) and restricted the mortgages and financial products they could offer.
During the first few years of the depression, volume on the NYSE dropped dramatically due to reduced risk appetite and they were then held in check by more prudent regulations like Glass-Steagall. In fact, it wasn't until the early '60s that NYSE volume recovered to where it was in 1929.
Basel III and Dodd-Frank are a much milder form of Glass-Steagall. Given the historical context- that the last time we had an 80-year crash it became illegal to offer an adjustable rate mortgage and a commercial banker would have gone to jail for trying to offer a savings account that paid 4.5%, things could be a lot worse.
So no, a shrinking financial industry isn't unexpected, increased regulations aren't unreasonable at least in a historical context, and banks have been preparing for this for three years.
I think we're going to see two more years of 10-15%/year layoffs on the scale of 2008-2011 and then the general atmosphere for a typical front-office or back-office employee improving (though we'll still see some reductions in employment due to attrition and milder layoffs for another five years.)
CIBC would like to disagree
CIBC generated the strongest beat against consensus that we have seen this quarter and Q3 earnings represent a significant rebound from the disappointing second quarter,” John Aiken, a Barclays Capital analyst, said today in a note. “While definitely feeling the impacts of the market slow-down, CIBC’s wholesale operations have shown remarkable resiliency in earnings.”
Earnings from investment banking rose almost fivefold from a year ago, offsetting slower growth in consumer lending. Higher fees from advising on takeovers and financings, as well as merchant banking gains, increased results for the business.
Given crap quality reports like this, I'd actually say that consulting faces a bleak future.
deal volume in the current volatile and uncertain climate in the traditionally slowest month of the year is low?
Thanks McK, you really add value.
lololol consultants thanks for the stating the obvious now go back to bullshitting with your 2x2 matrix and your porters gay forces.
Keep my name out of this, motherfucker.
And from some of the reactions, you would think that McKinsey called your mothers whores or something. Why is industry turmoil such an offensive suggestion? Surely all the people on this forum are top-quintile performers and would survive any layoffs or industry contraction. But even for the layoff-susceptible... I don't see what's so blasphemous about questioning the long-term health of the financial services industry. Last I checked, investment banking is a job, not a religion. No?
I think this is a really great read.
I've spoken to a few people in the industry and who deal with the industry (buy side) and have been told over and over again the changes going on are not short term, have a good purpose, but are ultimately out of our hands.
I'd definitely like to say though that I hope as this happens, more of our best and brightest in our country go towards jobs in technology/engineering so we can continue to be the worlds center of innovation in the future
What do they say about PE?
As a former entry-level MBB consultant I can say something: 1/3 of the MBA sponsored analysts left consulting to do banking/PE, 1/3 came back to the firm and 1/3 did a summer internship in banking/PE but didn't get an offer. That report came from the last 3rd.
@ Nutry
Nowadays the best junior consultants (main offices of mbb) are direct promoted...if they don't bail to do something else . The suggestion that junior consultants would rather be bankers is completely laughable. More realistic:
40% bail to buyside, 30% do some kind of startup, 20% do some kind of school (probably not mba), 10% stay, of which maybe 1/2 will be direct promoted and 1/2 will eventually go to bschool. Very very few will ever attempt banking: why would you?
Well, my sarcasm in the internet usually fails - and so it did this time.
About the rest of your comment, what I can say is that in my former office you NEEDED an advanced degree to continue with your career after your 3rd year. Only the best of the best (which means 1 guy every 2 years in a ~250 consultants office) was promoted to associate in the 3rd year, and even he had to do his MBA to come back as a 2nd year associate.
And yes, some junior consultants wants to be bankers, even though that those who desired it the most went to did it directly from undergrad. Of the 4 consultants of my firm that were in Harvard MBA this summer, 2 were interning in IBD. Most who leave the firm go to corporate roles though.
Future of IB's (Originally Posted: 06/16/2013)
With the global economy still stuttering, and regulation encroaching ever more so, where do we think the global industry will be in say 2016?
Undoubtedly nothing dramatic will change, there will still be the prestige and the money, and the hours, but how different would the industry 'look', will cyclical issues may start to clear up (or get worse)? Will structural issues change the face of banking? Will labour flows start to stymie given the exposure of the industry to these issues?
Good question.
Future in investment banking (Originally Posted: 03/21/2013)
I've found an old thread about this, but I need some new info. I think about educating myself in finance and I would like to know what you guys think about it, is the business going to recover, and will they need people in 5-8 years? I'm currently stationed in Europe, so anybody who's working in London or alike is welcome to answer.
An MD told me that IBDs will eventually streamline down to smaller teams in order to maintain the salaries that they want to give out to continue attracting the best people. To explain how it came to this point, in itself, is another monster of course. But I guess the point is - it will become very hard to break into investment banking (and I'm assuming you're not talking about other functions within an "investment bank")
So the salaries will stay the same. I figured that it would be the opposite, with pay lowering to be able to have enough employees. But do you have any idea what kind of education I should pick to have a chance to get in? I heard engineering is something that'll be attractive in the future...
Recent recruitment trends in ibanking (Originally Posted: 07/12/2012)
I am a newly admitted MBA student in a top 10-15 MBA program (think Duke/Cornell) with no prior experience in banking. Talking to other MBA students and former ibankers, I got to a conclusion that very few people want to do ibanking anymore compare to 2-3-5 years ago. My question to current and prospective bankers, do you see the same trend? Do you think it is easier to get a job in ibanking now then in the past 5-10 years?
Thanks!
I wouldn't say easier or less competitive as you will still have more applicants (all of them very good and capable) than you have roles available.
However you have to decide for yourself if Banking/Finance will make you happy in the long run as the market has changed in recent years and will continue to change going forward.
Why not just look at the placement statistics for your school? Looking at just the recruiting statistics for this years placement at my school (also entering this fall), and talking with current 2Y as well as alum in the past two to three years, it seems recruitment is about flat. I wouldn't say it's easier to get a job in banking than in prior years given that recruitment numbers are largely flat if not down from the 'glory days'. Fewer people interested and fewer spots still means similar competition. At least that's how I'm approaching this fall and the recruiting season for internships.
I'll be at CBS
I'm sure IBs will be cutting back on hiring meaning it will be just as competitive
Were you not alive for something called the financial crisis?
Future of IB (Originally Posted: 10/20/2008)
Folks,
Let's discuss the future of Investment Banking. Please post your response to this thread. Make sure you include a reason for what you say?
My position is that IB has a bright future because of a number of factors -
1) Impending regulation - I have observed that many regulations create opportunities for IB and PE. 2) Emergence of Sovereign wealth funds. 3) Proliferation of PE funds. 4) Clear categorization of balance sheet banks and pure-play firms. 5) Rising populatity of Private placements.
Vicks
Which regulations are you referring to?
1) more regulation means thinner margins, less leverage, more transparency, less edge 2) SWFs have gotten crushed in the last couple of years - they have the antithesis of a midas touch. they will be much tighter with their purse strings going forward 3) There is no PE fund proliferation i have no idea what you are talking about. 4) you mean how meaningful pure-play firms have gone the way of the dinosaur. even hedgefunds, the ones who survive this mess, will wither under the microscope of increased regulation and transparency. 5) The impact of private placements should be negligible given the scope of fundamental issues the IB industry faces
I think IB will most likely go away in the next 10-15 years. Before you start saying I am crazy, hear me out.
Think back to the time when the cost of buying and selling stock was really expensive. The time that it cost over $100 per trade (not too long ago). Now you can almost trade for free... the reason trading was expensive was because of the 'advice' of stockbrokers and the fact that you could not go online and trade by yourself.
People often say "companies will always need to aquire other companies, so investment banking will be strong"...that is like saying "people will always need to type, so people will always demand a typewritter"... Once the acquisition and divestitures, and capital rasing becomes more transparent and easier for firms to do without hiring an advisor, than the market for IB will evaporate.
In short, I agree that firms will always need to aquire an asset, change capital structure, IPO, merge, etc...but if they are not paying the FEES, than the 'glamorous' bonuses will go away.
My two cents..
IB advisory will become a lot more like accounting advisory in the future. The big firms will be there like the bulge brackets, but we will have a lot more smaller or boutique shops just like CPA associations. We all know what the pay is like in accounting.
What about nonadvisory roles?
As long as banks are willing to underwrite financing, there will be fees. The problem is, they are not willing to underwrite anything in this market. Once the market rebounds, fees will return.
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