2020: A Banking Odyssey
From Investopedia:
Investment banks have flourished in a variety of economies, from the merchant traders of 18th-century London and Amsterdam to the behemoths of today, whose influence spans the globe. As long as there is a market economy, there are likely to be investment bankers coming up with new ways to make money, while the rest of us marvel at how they manage to do it.
This article provides a solid backing to the history of investment banking, and seems to have a resilient outlook for the industry. As political pressure mounts, layoffs continue and markets remain erratic, it would seem that, no matter how resilient IB has been, change is imminent. This begs the question:
- What will banking look like in 2020?
- Which income sources will investment banks begin/continue to focus on at the end of the decade?
- How will compensation change? Will other industries have seduced college graduates away with stronger packages?
- Will the industry be fragmented or will we continue to see consolidation among the big players?
interested to see people's thoughts. for one, i'd imagine trading will look quite different as the politicians will continue to fight speculation arguing it adds price volatility. id also imagine finance will eventually lose its hold on the brain trust (which any rational person can agree wud b a good thing. I mean who actually thinks Einstein from the Ivies is put to better use calculating a WACC instead of finding cures to diseases, etc)
apparently i answered this question b4 it was even asked....mind fuck
I am guessing there will be outsourcing, and a general flattening of the hierarchy, combined with a drastically reduced need for analysts. A "diamond" structure like McKinsey/BCG is possible.
A lot of work done by analysts now can be done by bloomberg/factset service people. No reason to pay people IB salaries to do stuff like spread comps, build PIBs, etc. You can probably send it to India.
This might be accompanied by a reduction in pitching. Everyone knows that a pitch has a 1 in 100 shot of succeeding. If it didn't "keep you in front of the client" I think they might have a negative return now. Companies are also getting smarter...bankers are salesmen, after all.
It is possible we would see an end to competition for deals as services become standardized. Maybe return to the Company-Bank relationships of 60 years ago. If all products are indistinguishable, you hire the bank you like. And you are more likely to favor a bank that is not also helping your competition.
also think too big to fail banks will go the way of the dodo as main street finally pulls their heads out of the depths of their anuses and shift their money elsewhere
That will never happen, but TBTF will implode on its own as the shadow banking system collapses in a few years.
[quote] "A lot of work done by analysts now can be done by bloomberg/factset service people. No reason to pay people IB salaries to do stuff like spread comps, build PIBs, etc. You can probably send it to India."[quote]
The problem with outsourcing in banking is not so much about "doing" the work, it's about each person being able to verify its accuracy. Unless you've spread a comp yourself, you are on the hook for someone else's work if it comes out wrong.
And while people think it might be better to be checking rather than doing,netting out the time it takes to verify the accuracy of someone else's work, you wont be saving that much time at all.
Personally, I think you will start to see a decline in leveraged finance lending by bulge bracket banks and find more and more Blackstone GSO and credit lenders who currently only do Mezz financing, start to offer their services underwriting risky deals that Investment Banks are unwilling to do.
Agree about the lack of time savings. Probably wouldn't do anything for total man hours used (your associate probably is checking your work anyways). But paying a guy in India $2/hour is still cheaper, even if he takes twice as long.
It's part of what I predict to be an industry headcount reduction. Banks simply do not need so many people to actually do business, especially if companies do not like pitch books in the future.
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