For more than 15 years, William has been writing about the changes in the investment banking and securities industry.
Here is a selection of some of his recent columns for Financial News on individual banks:
- why reports of the death of Morgan Stanley are premature
- who will take over from Anshu Jain as head of the investment bank at Deutsche Bank?
- how Lazard has laid its ghosts to rest
- how Tom Montag can stop Merrill Lynch misfiring
- and will Nomura say sayonara to Europe – again?
And here is a selection of some of his most read columns on the big issues facing the industry:
Investment banks and pay: a manifesto
A simple 10-point guide for investment banks to help them avoid the annual round of root canal treatment over bonuses
The pattern is now depressingly familiar. Each year banks provide a tiny amount of information about how much they pay staff, certain numbers (more incendiary than illuminating) are pounced on by the media, politicians stoke up popular ire, a few solitary City voices attempt to correct misconceptions but are shouted down and, eventually, the fuss subsides. Until, that is, the following year’s results are published and it all kicks off again.
While the outcry might be uninformed, banks clearly don’t do themselves any favours. Could a few simple tweaks to how investment banks pay their staff and, crucially, how they disclose it, break this annual cycle? One thing is for sure: it certainly couldn’t make matters any worse. Here are a few modest proposals as to how banks could get back on the front foot over pay…
Investment banks face a nuclear winter
Brutal third-quarter results will make miserable reading. But even a mushroom cloud has a silver lining
If you thought things were bad now, then brace yourself. The third-quarter results from investment banks are going to make for brutal reading. Across the street, senior investment bankers are preparing themselves for confirmation of what they already suspect: the once magic formula for investment banking no longer works.
The new equation runs something like this: a sharp fall in activity and volumes triggered by the sovereign debt crisis and macroeconomic uncertainty, plus a relentless increase in the cost of doing business because of ever-more onerous regulation, divided by excess capacity, minus a cost base that is less flexible than most people thought, equals – misery.
The head of investment banking at one large bank summed it up neatly last week: “This is a shitty business right now and there are no real signs of it improving anytime soon.”
Not having much fun in investment banking…
Regulators are enforcing greater transparency after decades in which banks printed money behind closed doors
Many of the most fun things in life take place in private behind closed doors. That used to be true of investment banking. But, as the financial markets adjust to the harsh post-crisis landscape, investment banking – whisper it quietly – isn’t much fun any more. And it’s getting worse.
A former governor of the Bank of England once said that banking should be “clothed in decent obscurity”. Instead, it is fast becoming an industry stripped bare by indecent transparency. The problem, of course, is that the industry had too good a time in private – able to conceal how much money it made, how it made it, and at whose expense. Now politicians and regulators are determined to encourage greater restraint under the spotlight of public scrutiny.
Investment banks: time for someone to say goodbye
You should never be the first to arrive at a party, or be the last to leave. And you should never, ever, be both.
The party in investment banking may have ended a few years ago, but, like a bad student bash, there are still too many unwanted guests hanging around in the early hours of the morning, perhaps not quite sure why they are there. It is probably time for at least a few of them to leave.
Since the financial crisis, the investment banking industry has been challenged by three fundamental questions: where is the growth going to come from? What will be the regulatory impact on the economics of the industry? And what will this mean for the competitive landscape?
In the past six months, the answers have become a little clearer: with revenues in the first quarter down across a sample of nine big investment banks by 11%, growth is stuttering and for most banks can only come at the expense of winning market share from weaker players.
The global regulatory onslaught of Dodd-Frank, Basel III, the European Commission and national governments has structurally reduced the profitability of the industry, particularly in fixed income trading, its former cash cow. But it is still no clearer which banks are going to throw in the towel.
Don’t write off banks in the US and Europe…yet
Bankers thinking about moving to emerging markets risk missing out on a far bigger growth market on their own doorstep
If they believed everything they read in the newspapers about the decline of Europe and the US and the rise of emerging markets, any self-respecting banker would book a ticket to Shanghai, São Paulo or Singapore. But, if they did, they could be missing out on a far bigger growth market on their own doorstep.
In the past few weeks, the doom and gloom over the future of investment banking and capital markets in developed economies has gathered pace. There are now 3,800 fewer companies listed in the US than at the market’s peak in 1997. A report last week by the Committee on Capital Markets Regulation warned that the US lead in capital markets continues to be eroded. An already stagnant European economy is about to be dragged back to the economic dark ages by the sovereign debt crisis.
The emerging markets – which were broadly unaffected by the financial crisis – are instead supposed to lead the world economic recovery and the next boom in capital markets. China is growing at more than 9% a year, with India just behind. Africa has suddenly become the next big thing. Banks are competing with each other to ride the next big growth wave and give it a catchy name (or acronym).
And yet. As we report this week, developed markets are leading the investment banking industry (if not the global economy) out of the crisis. Global M&A activity is up 27% this year, but growth in US activity accounts for over half of that growth and Europe accounts for 40%, according to Dealogic. Growth in Asia accounted for just 25%. While there is some overlap given the cross-border activity between developed and emerging markets, the growth alone in the US and Europe this year is the same size as the entire Asian M&A market.
Investment banks: competition isn’t working
It is an essential part of every investment banker’s lexicon that competition in their industry is fierce – and getting more so
So it is perhaps fortunate that the Independent Commission on Banking chose last week to skim over the issue of competition in investment banking when it published its draft report on the reform of UK banking. Not least because the ICB’s view on competition is clear: it isn’t working.
Although often overlooked, competition in investment banking was part of the original terms of reference for the ICB’s report, bundled up with the more politically charged issue of competition in the retail market.
With much of the report focused on the ICB’s recommendations to reduce systemic risk by ring-fencing retail banking from wholesale banking and boosting capital ratios, it dedicated less than two pages out of 208 to the issue of competition in investment banking.
In these two pages, the report was necessarily concise: it is clear “that there is a lack of price transparency in this market… that for some products and services prices are very high”, and that high remuneration in the industry “does not give confidence that competition is working well for customers”.
While there is occasional evidence of price-led competition, this tends to be episodic and led by new entrants. Whatever competition that exists “does not appear in all cases to focus strongly on price”.
The commission seemed bemused by the muted response it had on this issue from customers during the consultation, and was surprised that most of them “appear content with the functioning of these markets”.
This, it said, was “at odds with what some of the wider evidence suggests to the commission about how well competition is working in these markets”. Reading between the carefully worded lines, its message was loud and clear.