Restructuring Outlook: The Hottest Product Group in Banking

YungBull's picture
Rank: Gorilla | 571

I think the restructuring industry is going to increase in performance (deal flow, yearly transaction $ totals, value as a revenue driver for investment banks, etc.) in the next 10-year horizon. In the next 0-5 years, I think a recession is likely to occur causing the economy to contract and more businesses to go bankrupt.

Do you guys think a recession is going to occur in the next 0-5 years?

Below is a graph of the yearly amount of US companies that face bankruptcy from 1980-2018:
US Bankruptcies 1980-2018 We are approaching an all-time low in annual bankruptcies.

From '07-'08, US bankruptcies more than doubled:
US Bankruptcies 2007-2008 In a recession, you can expect more companies to go bankrupt.

Therefore if you guys think the US economy is on the brink of a recession, you MUST believe that restructuring groups are going to be very busy moving forward and could be one of the hottest investment banking groups. Educate me otherwise.

As an undergraduate interested in the industry, I think it is the perfect time to join a restructuring group. In the likely scenario that a recession occurs during my analyst years, there will be a bountiful of bankruptcies, and I will be able to work on multiple deals regardless of the MD's ability to source deals. Do you guys agree or disagree? Is anyone else pursuing employment in the restructuring industry?

Recession Indicators:

A Forbes article titled "When Is The Next Recession" from a few months ago makes the following points:

Of course, predicting the precise time of the next recession is not possible, but the consensus among economists is that we are due: the 11-year economic expansion is one of the longest in U.S. history.

The St. Louis Fed provides a helpful list of the standard leading indicators of a recession:

  1. "A big increase in oil prices has preceded nearly every U.S. recession since World War II."

President Trump tweeted on April 20, "Oil prices are artificially very high! No good and will not be accepted," as if President Trump could stop the price rise and stop the recession. Brent crude prices increased to $74.62 on April 24th, climbing over 50% in the last year. Increases in gas prices have erased the expected income boost of the tax cut for most families below the median.

  1. "Asset prices swelled before the two most recent recessions: stock prices before the dot-com bust in 2000 and housing prices before the financial crisis."

The Economist's lead story six months ago was "The Bull Market In Everything." In April, the Shiller price-earnings ratio measure for the U.S. stock market was about 31. For reference, the PE ratio was about 27 in October 2007 and 44 in December 1999.

And even if a recession does not occur soon, there will always be the fair share of retail bankruptcies, as it appears the retail industry is slowly going out of business. The retail industry is a dying industry.

Comments (7)

Aug 9, 2018

Anyone have any input?

Yung Bull

Aug 9, 2018

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Most Helpful
Aug 9, 2018

Don't make long term career decisions based on what could, maybe, be hot for a couple years at some unclear point in the future

Array

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Aug 9, 2018

I completely agree with this point unless one has a passion for this type of work. I'm pursuing full-time recruitment, and I very well could end up with a lower-tier restructuring offer or an upper tier IB offer in a subpar location. Not exactly sure what to take but would like to pursue restructuring long-term.

Yung Bull

Aug 9, 2018

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    • 1
Aug 9, 2018

This is exactly what I am trying to figure out, and think you worded this better then myself. I would love to hear from someone with industry experience or someone who had gone through the '07-'08 recession in banking.

Yung Bull

Aug 9, 2018
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