Yesterday's New York Times ran a piece on the Wall Street slowdown that is getting a lot of attention. The less than rosy picture painted by the article addressed the elephant in the room for many investment banks - deal flow has dropped off significantly and the death of prop trading is going to hammer the bottom line. Bank analyst Meredith Whitney thinks it might be the trend going forward.
Worldwide, the number of stock offerings is down 15 percent from this time last year, while bond issuance is off 25 percent, according to Capital IQ, a research firm. Based on these trends, Ms. Whitney predicts that annual revenue from Wall Street’s main businesses will drop 25 percent, to around $42 billion in 2010, from $56 billion last year.
Citi banking analyst Keith Horowitz recently revised his projections for Goldman Sachs and Morgan Stanley downward - by a lot. He's estimating Goldman's earnings to drop 35%, from $12.1 billion last year to 7.8 billion this year. He originally called for Goldman to earn $3 a share in the third quarter; now he thinks $2.30 a share is more realistic. He revised his projection for Morgan Stanley down from 53 cents a share to a dime a share, an 81% revision to the down side.
Junk bond business seems to be holding its own, but it's not enough to a carry a bank. Banks with commercial arms like JP Morgan Chase and Bank of America will fare better than straight investment banks, and with credit card delinquencies slacking off credit losses will be more manageable.
Overall, it's not good news for monkeys. Compensation is expected to drop big time this year, and layoffs are inevitable if you believe Meredith Whitney. The hiring boom Wall Street experienced early in the year may have been premature, and she's calling for long-term downsizing going forward.
Ms. Whitney says the gloomy short-term predictions foreshadow a series of lean years in the broader financial services industry.Indeed, she said the Street faced a “resizing” not seen since the cutbacks that followed the bursting of the dot-com bubble a decade ago.
“We expect compensation to be down dramatically this year,” she wrote in a recent report. She predicts the American banking industry will lay off 40,000 to 80,00 employees, or as many as 1 in 10 of its workers.
I know it isn't good news, guys, but forewarned is forearmed. If anyone is seeing any bright spots in their divisions, I'd love to hear about it. I think everyone else would too.
P.S. Might be a good time to review Why You're So Easy to Replace. Just sayin'.
Prediction: If Meredith Whitney is indeed correct in her forecast, we're going to see the rise and proliferation of the MSF in the next few years.
You mean increase in applications to msfs and bschool? Or MSFs gaining ground on the MBA? If the latter, why?
In any event, this does not make my day...very depressing news.
I mean much greater volume and competition in the admissions process. For the population of upper-middle class prospective monkeys, the MSF remains a strong plan B with a lot of save-face. When less of these prospective monkeys get SA and FT jobs as hiring slows down, we're going to overwhelmingly flock to the Masters programs to improve our candidacies and delay our recruiting.
I wouldn't be surprised if some schools recognize this and create MSF programs.
Anthony will be very happy if you're right San Fran...
More doom and gloom...sigh
Too early to say if this is going to lead to another wave of major layoffs, I doubt it, most groups I know of are running quite lean.
I think the bottom line is that if you're going to work in this industry, you either have to have enough cash saved up to make a graceful exit if you need to or you need to be competent at something else.
A finance degree just doesn't cut it as much as it did five or ten years ago. Today, you need to have NASA or Google as your backup plan if you get laid off. Likely, the good programs will also become tougher to get into.
I don't think an MSF or MBA is going to help right now as much as two years of industry experience- and a solid backup plan involving insurance, accounting, programming, engineering, or academia. In any case, during a recession or contraction, networking and soft skills don't help you- it all comes down to competence and/or making yourself indispensible in some way shape or form.
In any case, it's pretty wise and healthy to stick to a middle-class lifestyle like the rest of the country- as well as an IRA. We can also expect taxes to rise and the market to get more efficient in the coming years- narrowing salaries on the street. That's ok- our parents pulled through the '70s and early '80s, when unemployment was higher and people literally thought the end of the world was coming. We no longer have Soviet missiles pointed at us and US cars are no longer falling to pieces after driving off the lot. The world is running out of cheap workers, and the US has gotten back to the top of the charts in manufacturing quality around the world.
In many ways, the US is in much better fundamental shape as a country even if we're slogging through a recession that rivals the worst of the postwar world. The long-term outlook isn't as scary today as it was in 1977- or even 2006- and even a time as bad as 1977 was merely seven short years before 1983/84/85.
We've got it easier than our parents and A LOT easier than our grandparents. If our parents could get through worse than this- and make it into the middle-class or upper-middle-class, I'm sure we'll be just fine in the long run, too. But in the meantime, it doesn't hurt to be thrifty. I'm commuting 35 minutes to work to save a few hundred a month at the age of 25- when my Mom was that age, she was doing that AND gardening to save $20/month on groceries. When I asked her about it, she said she was just grateful she had a job and didn't qualify for the WIC coupons she was responsible for giving people.
Bottom line, if you can put food on the table and put a roof over your head, you're doing just fine. Just try and save some money for retirement.
How is bond issuance down 25%? No Way....
U.S. investment grade corporate debt was down 20% last week (YoY).
Partly because of a general slowdown, more vol, and because there was such a huge amount of issuance done in 2009.
Things have been really slow in my group, with people having full weekends off and getting off at 7pm. The troops are enjoying the lull but are definitely restless. The "friday night global" indicator tells me that this is true across the bank for the most part. ECM is exceptionally slow, DCM is still busy.
I hate to be the bringer of bad news, but be prepared for several years of famine ahead in our industry. Volume is anemic across the board, putting flow traders in the line of fire. Bank prop desks are getting axed left and right. Prop shops are blowing out entire trades. Companies have tons of cash, but given the current hunger for yield and lack of opportunities, look for increases in dividends instead of M&A. All this on top of increased regulation and public scrutiny.
Are all business lines experiencing a slow down? I know DCM is slowing and ECM's been slow, but what about other parts like M&A, Restructuring, Credit (Structured & Lev. Fin), and AM?
http://online.thomsonreuters.com/DealsIntelligence/Content/Files/Weekly…
nice job IP
face it the era of algorithms is at hand
^^^ Revenge of the nerds!!! :D
Seriously, I don't see it really happening for another 30 years. However, there were extended periods in the '40s and '50s and during the '70s where investment banks just didn't make a whole lot of money. I think this is more along those lines than Skynet taking over.
http://www.businessinsider.com/hugh-hendry-doctors-and-engineers-new-he…
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