Which IB teams are most and least affected by these tariffs/market downturn
Trending Content - Investment Banking Forum
Career Resources
Least: Oil & Gas. We have abundant natural resources here so don’t need to worry about importing / exporting. Can just consume internally.
Most: Clean energy. Where do parts for solar, wind, EVs, battery etc come from? (Hint: china)
As an oil and gas banker, i can confidently say you can't be further from the truth. Don't know if you are tracking but oil is down to $61/bbl. Oil is very sensitive to the overall health of the economy.
Have a pulse on the energy industry although cover infra not upstream. Producers are highly burdened by debt. You're going to see a number of asset sales at attractive valuations. With the ESG backlash more and more investors are willing to buy upstream assets, especially given how high FCF yield are even at $50 a barrel
Just accepted SA26 offer at a dedicated clean energy/renewables group not cross-staffed with trad energy (JEF/Citi) will I be poor and jobless in 2 years what the fuck is going on
Ok… opec ratcheting up production, steel costs rising by 30% and potential retaliatory tariffs against us LNG. What are you smoking that this won’t impact oil and gas. Rigs are going to drop 20-30 in a month at this rate
Oil and gas looool
How about product teams? ECM? DCM? IBD Derivatives?
Each of those will get decimated. Restructuring will perform very well.
How about desks that sell derivative products to clients to hedge rates/macro volatility?
That’s not really investment banking though?
Surely EMEA desks would have no issues?
There are multiple lens you can take when viewing this. As someone with a RE background, I’d like to think that compared to tech, industrials, C&R, etc, the real estate coverage group will err on the side of being less impacted relatively compared to others.
Public market reaction so far (YTD):
With the recent news, we can see that the impact, while felt, is less pronounced for REITs than say tech or consumer stocks. And it makes sense - real estate is a much more demographic driven industry so it relies more so on people within a country rather than products which may be exported/imported, and thus subsequently impacted from tariffs (which will hurt companies, their demand, and their margins).
Cost of Capital:
The 10Y Treasury Yields has been trending downwards ever since it peaked late January, and I think it’s not unrealistic to project that yields may come down to 3.5-3.8 level by second half of this year with the growing uncertainty. The way RE is setup is that cap rates directly impact valuations, and the dynamic between cap rates and the 10Y trend recently may be beneficial for real estate valuation specifically. Additionally, the industry has a so called “wall of maturity” that’s due this year (and next I believe). This reduced cost of capital may be a relief for some investors in the space as they can refinance for lower rates. Additionally, some would-be home buyers may be now more inclined to potentially purchase homes due to lower interest rate, but that’s an iffy because people usually do not make big purchases in times of economic uncertainty like the one we are in right now.
There are a couple more i have in mind and the points above can definitely be expanded further but it’s 2am and I’m sleepy. So those are my 2cents for now.
Just to caveat, maybe a bit more doubt on that yield. The 10Y is having a bumpy ride, and what's worrying is that it's coming from multiple things, two of which could have some extended impact. One is the obvious, China tariffs are forecasted to ratchet up inflation by a very solid margin, and the universal 10% won't help, or the immigration crackdown if it were to actually unfold. And then all this uncertainty is there, but yields are actually pushing up in spite of it, some think that the America's ultra privileged financial status weakens (I did not say end, we ain't leaving the USD as a reserve currency yet, but there're clear incentives to diversify here). Also have to watch the gov spending (tax cuts) there.
.
Rx is the most chilling (and all teams at most EBs with strong Rx teams) since they're under far less pressure to reduce costs since Rx will offset the decline in m&a rev. If its a generalist m&a programme even better.
Worst place to be large lending banks who don't have a focus on their IB division regardless of team
Why m&a generalist is good?
Not exposed to a specific sector. So if they needed to cut they'd cut the objectively worst analysts from the whole class, rather than you getting unlucky by being in a poorly performing sector. Same with return rates.
Depends on the EB tho CVP and EVR for instance are much more M&A weighted than PJT
That's true but still in a much better position than lending banks. Shareholders in EBs are invested in the story of EBs building and growing their M&A practices for the long term (so firing and then expecting them to hiring again in 2 years makes little sense) whereas this isn't the case for UBS/RBC/WF type banks who's management is under pressure to cut costs wherever it can. Management of these banks also don't care as much about their IB division so wouldn't mind cutting back IB growth to appease shareholders in the short term which is the complete opposite for the EBs.
What about FIG?
(asking as a FIG SA)
bump
Bump
from what I’ve seen, energy and industrial teams are getting hit the hardest, while healthcare and consumer staples groups are holding up better. LevFin is still busy but a bit picky with deals, DCM has slowed down, and risk teams are pretty steady
do you see DCM picking back up a bit going into the future?
Yeah, I could see DCM (Debt Capital Markets) picking back up, especially if interest rates start to stabilize or drop later in the year. Companies that held off on issuing due to high borrowing costs might jump back in to refinance or raise capital
Industrials will be fine; it's a very PE-dominated space and PE firms ultimately have to transact given their level of dry powder. Will just expect more CVs and LevFin activity in the Industrials space as opposed to M&A activity outside the tippy-top assets. The dislocation and uncertainty also mean PE might get to do even more deals. The top industrials assets rn are going to be going for very high valuations rn given the level of uncertainty. Also, think tariffs will see increasing domestic investment in CapEx will naturally lead to a desire for capital raises/deal-making.
.
My thinking about the sea change materialized mostly as I was visiting clients last October and November. When I got home, I wrote the memo and began to discuss its thesis. And at the December meeting of a non-profit investment committee, I said the following: "Sell off the big stocks, the small stocks, the value stocks, the growth stocks, the U.S. stocks, and the foreign stocks. Sell the private equity along with the public equity, the real estate, the hedge funds, and the venture capital. Sell it all and put the proceeds into high yield bonds at 9%."
This institution needs to earn an annual return of 6% or so on its endowment, and I’m convinced that if it holds a competently assembled portfolio of 9% high yield bonds, it would be overwhelmingly likely to exceed that 6% target. But mine wasn’t a serious suggestion, more a statement designed to evoke discussion of the fact that, thanks to the changes over the last year and a half, investors today can get equity-like returns from investments in credit.
The Standard & Poor’s 500 Index has returned just over 10% per year for almost a century, and everyone’s very happy (10% a year for 100 years turns $1 into almost $14,000). Nowadays, the ICE BofA U.S. High Yield Constrained Index offers a yield of over 8.5%, the CS Leveraged Loan Index offers roughly 10.0%, and private loans offer considerably more. In other words, expected pre-tax yields from non-investment grade debt investments now approach or exceed the historical returns from equity.
-- Howard Marks
Couple of comments:
1. BDCs are themselves highly leveraged. Calling their model “credit” implies a notion of safety, but they are firms that are leveraging a basket of leveraged loans. Take one of the largest, Ares: they have $13bn debt outstanding with $635m of cash, and +$1bn debt maturing every year going forward.
2. As an investor you don’t get the gross IRR, you get the net IRR after all the fees and expenses are paid. The loans may gross 9-12% and have strong credit, but they pay their significant costs plus leveraged interest in order to get 10% net irr, which is why they lever up.
3. He’s comparing these leveraged returns to a much lowered leveraged and much larger cap (lower risk) S&P500 return of 10%. A more apt comparison is private equity, which is after all a lot of what they are investing in, which has returned 14-15% net. An additional 4-500 bps is significant. After all they are themselves yielding around 500 bps over treasuries.
4. Most of these BDCs have started since 2011. They haven’t had a significant recession before. We’ll see what their returns, funding dynamics, and stock prices look like when they’ve gone through a full cycle. They may be hiding some serious refinancing and leverage risk.
Does anyone have input on Healthcare? Usually is pretty resistant right?
What are we thinking on business services?
My business services deals aren’t directly affected given no manufacturing but everything is basically on pause rn. Loan markets are effectively closed so good luck getting financing
Appreciate the insight. Figured on services as low goods component.
Have SA coming up this summer. Is it going to look a lot different than typical SA experience?
Thoughts on public finance?
Repellendus eveniet molestiae iure velit consequatur officiis. Quia optio saepe voluptas et sunt.
Quo at magnam voluptatem qui quam. Modi laudantium reprehenderit aperiam commodi est qui. Et aut accusamus occaecati quaerat numquam aliquam corporis libero. Qui voluptates voluptatem adipisci qui aut illo blanditiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Culpa qui et ut quia et. Consequuntur quia voluptas nesciunt aut voluptas minus. Ducimus id molestiae repudiandae. Quidem voluptas odit et saepe. Eos tenetur sit eligendi.