2020s Investment Banking Outlook
Hey!
I just wanted to recapitulate some key winners/losers over the 10s in IB and what is most likely to happen in the decade ahead.
IMO:
10s Winners:
- J.P. Morgan
- All EBs (most prominently Evercore & Centerview)
- Barclays (positioned as only EU bank to maintain IB market share)
10s Losers:
- UBS (basically no BB in NY anymore, lost significant market share everywhere)
- DB (to be avoided going forward)
- CS (went into the decade as No. 4 BB, now losing market share by the minute, even LevFin has seen stronger days)
- Lazard (simply not what it used to be)
- Greenhill (hardly an EB anymore)
20s Projections:
- J.P. Morgan and GS will move apart from MS to form a top 2 with MS, BofA, Citi after that
- Either BofA or Citi will become a strong competitor to JPM/GS
- UBS and DB will dissolve US business pretty much entirely
- Barclays will become the best of the rest after US BBs and EBs
- CS might either reinvigorate their business under the new IB head or retreat its whole platform IB ambitions
Plus Evercore will move into the top 3 of M&A league tables with PJT and Centerview solidly in top 10.
Thought PWP would have a shot as well to get into this but seems like they’re lagging behind. Wonder how Guggenheim would fare as well.
IMO, both PWP and Moelis are already past their height. Particularly the latter isn't doing well at all this year and I do not think the firm can survive outside of Ken's own reputation.
I agree UBS is dead for M&A, and RBC should take their place in the sort of "bulge bracket" discussion.
Also agree with the strength of Barclays, they are essentially a US BB because of Lehman Brothers.
Citi has a tremendous worldwide reach, so I see them clearly surpassing BAML in the near future.
I also might add that I believe Wells Fargo to have a positive future(not dominating US BB but pulling solidly ahead of some MM players, UBS, perhaps DB)
I'm genuinely curious about the future of heavy hitting yet small boutiques such as Dyal - are they "one hit wonders", or do they have a strong trajectory ahead?
I agree with Wells, especially considering their new NYC office at Hudson Yards. I talked to some people about what they think of their outlook, and one MD I spoke with compared Wells now to early 2000s BoA, however their strategies for growth aren't necessarily the same as BoA's were.
Moving office locations does nothing to change your fortunes, just ask any bank that moved from fidi to midtown in the last 15 years.
WF is a balance sheet bank and their relationships will always be driven by the fact that they can underwrite huge loans to corporates. They will never be a premier / BB level advisory shop... and they shouldn't. They are a retail bank and should focus on writing big safe loans to corporates, leaving the more complex / interesting deals to smaller banks who have much smaller scale and more risk appetite.
Interested to see what CS does in the wake of UBS/DB disasters and Barclays stepping their a-game up.
Evercore has been poaching BSD's from the BBs like crazy.
I honestly think that Wells Fargo is positioned to have huge success in the 2020s. Wells Fargo has a huge amount of assets and will be able to use their balance sheet to hang with the big boys. Once WF gets by all of the regulatory hurdles they currently have, they can look to grow their business again. Also, they just moved their NYC office to the best (and probably most expensive) location in NYC and I believe this is a sign of management of wanting to expand their IB presence. I've read a couple articles that WF is handing out big pay packages to recruit people to their wealth management business and I am wondering if they might do the same with IB. Also, I've heard the culture at WF is great - not a place too many don't like working at.
Does anyone have any thoughts on this or would like to disagree? I would appreciate if any current WF bankers could chime in as well.
What is really the problem with WF is that they simply do not have any track record in strategic IB products. Sure, they might finance some deals and get a league table credit for it but no one would really go to only WF for the expert strategic advice on a massive transaction given the multidude of alternatives.
While WF might be somewhat comparable to Banc of America Sec, pretty much every single large retail bank had to acquire a premier investment bank to become competitive: Bofa and ML, Citi and Salomon, Barclays and Lehman, UBS and Warburg, CS and FB, DB and Morgan Greenfell. As there are no similar targets available to WF, I do not really see them moving anywhere in M&A/ECM.
I think the Barclays numbers are misleading- they were very poor last year so the growth this year is more reverting to the norm than extraordinary growth. I'd argue that the news around their IB this year would spell trouble moving forward - will they continue to pour money into this unprofitable business (IB) if activist investor pressures come back in the next year? Tough to say, but I don't see as positive of a narrative for them as you paint.
On the euros, I agree that UBS and DB will slowly retreat from the US IB or perhaps IB in general. CS appears to have restructured at the right time, and could be poised to rebound. When euro interest rates turn around, every part of the bank will.be more profitable, making pouring more money into US IB and supercharging growth more palatable to investors.
Just my 2 cents.
Also will be interesting to see how Brexit affects the outcome of Barclay's vs CS over the next few years. Between that and interest rates inevitably rebounding, The European markets are due for a few seismic changes in the near future that may make it easier to run a swiss bank that's part of the EU than a British bank on an island...
While IB is certainly siloed from the rest of the bank, it's easy to forget that the high level decisions made about its future are made by people responsible for more than just IB. Esp at a bank like Barclays where retail banking is their core function. At least at CS the core function of wealth management to UHNW has strong synergies with IB, meaning the franchises will likely grow (or fall) together. Synergies between consumer banking and IB... not so much. This makes it much easier to see a bank like Barclays moving away from IB when times are tough, a la DB, and focusing on their true money maker franchises. Whereas advisory IB (lesser so trading) appears to be tied to CS 10 year growth plan regardless of how tough times get.
Tobin & Co will become an EB - no doubt in the my mind.
Looking at the deal flow and chat in the market in the shorter term (last couple of years), it seems like 4 big winners have been:
1. JPM - effectively solidified #2;
2. Centerview - competing with Evercore and overtaking Lazard within the EBs (see Factset 2019 league table);
3. Jefferies - essentially the best example of a bank increasing in value consistently [albeit starting lower than the others mentionned, but still very impressive and admirable to reach top 10] (see Mergermarket tables showing impressive gains e.g. 11th in US deal value, 8th globally in buyouts+exits, 6th in UK deal value etc.); and
4. PJT - competing with Evercore with a highly respected reputation (some great hires too which is promising)
Jefferies is the new MS.