How bad are things going to get?
JPM 4 figure bonuses, 40% return rates…. Are IB analysis in for a rough next few years? Wonder what analysts were thinking as the 2008 recession was looming….
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other banks had return percentages that were way higher so youre just selectively using data. JPM also has 270k employees and a CEO who is known for putting a huge emphasis on a fortress balance sheet.
and who knows re: next few years
My view. We are in the top of the first inning of the bloodbath and three years from the trough.
- IB headcount will be down 40-50% in the next three years through attrition and layoffs. Maybe more. The analyst bonuses at several firms are a kind way of telling people to GTFO
- Banks will protect their stars at every level. Just “above average” players will see their comp fall. Average and below are unlikely to survive and if they do, there is no reason to pay them well
- Analysts will have smaller classes; associates and VPs and Ds and average MDs are where the real pain will happen
- Amongst the large firms, American banks will continue to consolidate market share plus possibly Barclays and DB. But this will be on a much smaller market and there will be a lot of pain
- Middle market firms will continue to perform well although at many shops (JEF, HL), there is over staffing and I can see these firms being brutal in order to pay their producers
- Independent firms will diverge in their fortunes, some illustrious names will be decimated, some will muddle through. Overall, it will be tough. I would still prefer to be at these or the MM firms in a downturn because they tend to be less political and advisory work is less cyclical
- Those that survive will do very well in the next cycle; it’s often a blessing to start in a downturn if you can make it through
- Whatever hits banking will hit law and consulting equally hard, and tech much much harder. Amongst high paying professions there will be little room to run
in summary, I see a bad moon rising
Interesting take - why do you think it’ll be a blood bath?
+tons of pe money
+not a ton of leverage (lenders weren’t running wild)
+margin pressure in general Will drive consolidation
Care to offer a prediction of what straw breaks the camel’s back?
Soruce: Trust me bro
Appreciate your honest take and trust you’ve seen things a long time so know better than most but feel like this is way to precise of a prediction
On what basis do you think things will recover in 3 years? 40-50% also seems really punitive, that’s like half the headcount at major banks, you really think they’ll fire that many people in this cycle? Even in 2008 some of the major banks didn’t cut that much
I’m a banker - it’s my job to be precise when dealing with uncertainty (what we do when we recommend a specific purchase price to a client or price a bond).
2008 is the wrong comparison. Banking fees actually didn’t drop and capital markets were close for no longer than a month. Rescue financings and balance sheet repair made 2009 a good year, and you saw banks like Barclays and Jefferies bid aggressively for bankers. I don’t think headcount fell.
2001 to 2004 and 1990 to 1993 feel much more comparable in terms of how long markets are shut. The three years is a guess based on the comps. It generally takes a year of shellshock (which is now), a year of bloodletting and a year of recovery. In each of those markets, banking headcount fell 40-50% and the overhiring was greater this time.
and why I feel this persists.
Equity and HY capital markets have been shut for the better part of six months. This didn’t happen in 2008 and is worse than 2001.
Bulge bracket banking revenues are down 50%+. Comparable to 2001. M&A will do ok but it can’t conpensate for loss of ECM and HY.
Large balance sheet losses for hung LBOs. Goldman losing money is a canary in a coal mine.
and an increasing acknowledgment relative to the past that at most banks 20% of the people bring in 80% of the money which means a lot more understanding that you need to pay your stars and everyone else is expendable
Will RX be fine?
Yes, but if overall bank revenue are down they might just use it as an opportunity to cut across the board..... not saying that is what's gonna happen, but its not improbable
Any tips for an incoming freshman? lol I’m probably getting fked!
Try senior dude
fear-mongering, white woman on instagram-tier take
This has aged well
Keep in mind that this is just one person's take. This guy just said that "Whatever hits banking will hit law and consulting equally hard, and tech much much harder." Banking always tends to get hit the hardest since the direct first order effect of rising interest rates is to siphon money out of the capital markets, thus reducing transaction activity. Sure, all high paying professions suffer, but others are hit more indirectly as a second or third order effect of rates. And then there are fields like consulting where this guy is just completely off; my buddies at MBB tell me that it's business as usual and in fact some are busier than ever because companies want advice on what to do when things are getting tight. I'm not gonna take out the time to refute the other stuff he says but it's mostly just one guy's opinion, none of it is really substantiated by hard evidence.
Where tf are you guys getting 40% return rate from JP my group gave out 80%
So much fear mongering going on. Sure bonuses and M&A volume won’t be at peak Covid level but this isn’t going to be an ‘08. I think we as a generation just aren’t used to recessions when they’re a pretty normal aspect of the economical cycle.
Hot but interesting take. Would love to hear the thinking as well
how tf you certified as a car brand?
Cant comment on current state of affairs in banks since I am no longer a banker but I started my analyst program in 2008 at a bulge bracket so can give some color on what happened in 2008 and don't think this is comparable in terms of magnitude
I was a summer in 2007 which was a record year for analyst bonus (top tier first year analyst at $70K with $60K base, thank god for inflation) but even towards end of my summer the doom was coming and most bankers were already cautious and telling incoming analyst they were unlikely to get anything like that.
Anyways when I started in summer 2008 you started living the recession with very limited live deal flow and obviously all the news including Lehman's BK. There was a first round of layoffs in September '08 and it was mostly bad performers at Associate and VP level. There was a second round in December '08 and this one impacted 3rd year analyst, associates, and VPs and it included top performers and probably 10 to 15% of most groups. This second round included 1st year analyst in DCM and ECM but not IBD.
There was a third round in March '09 of mostly 1st year analyst and associates.
But by October '09 most groups were looking to hire. My group let go 4 analyst, 2 associates and end up hiring 2 analyst in October '09. Also there was a decent salary bump in summer '09 ($60k to $70K)
Doubt this will be as bad as '08. The GFC was a financial crisis originating in the banking system itself and led to the failure of multiple large financial institutions. Not every crisis results in 50%+ headcount reductions.
No chance this is '08 - there was a systemic crisis predicated by the housing market that caused a chain reaction. This is just a case of over-exuberance and over-valuation. The one wild card is rarely have we seen rates rise as an economy slows but I imagine that will be a self-fulfilling prophecy and we'll go back to cutting sooner rather than later.
The last time we had stagflation, it was followed by a huge LBO boom and the golden age of high finance. Not saying the same will happen again as the industry today is clearly at a very different stage of growth. But any claims that headcount will drop 50%+ are equally exaggerated.
Bankers are the worst people to ask to make economic predictions lol
The housing market is ROCK SOLID
Yall are so doom and gloom for no reason. My area of banking, at least, actually had a very good year (Securitization)
Weird flex lol
This thread makes me scared about the uncertainty. I literally went into this sector at the worst possible timing.
Especially the prediction by @mergersandacquistions78
You should'nt, most likely impact for you would be a low bonus and
I have a feeling that anyone thinking we are going to go through a 2008/2009 experience was not in banking in 2008/2009.
I was and it was scary as fuck. This doesn’t even remotely compare
Recent bias. Most analysts were being birthed during dot com bust.
this is a tech bust with real estate bubble popping. Both are huge components of the S&P and will hurt everyone bc of passive management
What are you talking about? Real estate is strong, my group has been active in RMBS
People who keep saying consumer balance sheets are strong haven’t spoken to anyone outside of IB recently
I have.
Our group just gave 100% return offers. Where tf are u getting these numbers OP?
Based on how my experience during the last recession it's going to be a rough day better buckle down and prepare for the worst. Might be time to move to smaller shops to weather the storm. I heard City Capital Advisors out in Chicago has been booming recently sign of the times.
How would moving to smaller shops help weather the storm? Smaller shops are the first to fall. Also, idk what “City Capital Advisors” is, but what city do they be advising?
My associate just sent me an email asking me to change 1 word in a word doc that they had open. Things are going to get much worse
Bruh did someone really say 2008 crisis they don't think IB headcount fell? Advisory work is less cyclical? What are you goobers even talking about
With respect, anyone who thinks this remotely resembles 2008 did not live through 2008 or has not studied what went down. We were literally two days from the complete collapse of the US financial system. Two of the biggest five banks failed. The S&P lost 38% that year, almost 2x 2022's loss.
imo the coming recession will be close to on par with 2008-2009
Companies packed on debt to get through covid and now the consumer has far less to spend due to inflation. This will kill growth for a decade or more. Stagflation is more like it.
Capital markets activity will be all but dead, and M&A will be subdued. It's not really complicated. The last 30 years have seen the complete financialization of the global economy and now that will all unwind.
Comparisons to 2008 are stupid, these are two entirely different paradigms. 08 was a liquidity problem, this is a solvency problem.
Way harsh guys. This is nowhere near 08 for a variety of reasons. Recommend reading a few publications on what is to be expected by bank research teams or economic bureaus
https://www.cnbc.com/2022/12/28/global-economy-is-heading-into-a-decade…
published this morning lmao
Can we all just be honest enough to say we have no idea?
Yall are some Negative Nancys. Is this the type of shit you tell your clients? No wonder no one's getting any deals done. If anyone asks, we're all still bullish. Term sheets due Monday....
Correct
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