02/12/2023
๐๐ง๐๐ฅ๐ฒ๐ฌ๐ข๐ฌ- ๐๐ฎ๐ซ๐จ๐ฉ๐'๐ฌ ๐๐๐ง๐ค๐๐ซ๐ฌ ๐๐ซ๐ ๐๐๐๐ข๐ง๐ ๐ญ๐ก๐ ๐ญ๐ก๐ซ๐๐๐ญ ๐จ๐ ๐ฃ๐จ๐ ๐๐ฎ๐ญ๐ฌ ๐๐ง๐ ๐ฅ๐จ๐ฐ ๐๐จ๐ง๐ฎ๐ฌ๐๐ฌ ๐ข๐ง ๐๐๐๐
A mix of global economic unease and geopolitical uncertainty means there is a lack of optimism among bankers from the City of London to Frankfurt's 'Manhattan' financial district.
Even rainmakers famous for making deals out of nowhere are struggling to work their magic and see ways to lift investment banking revenues out of the recession.
Finance executives, consultants and headhunters interviewed by Reuters predict less deal flow, modest bonuses for most and huge job cuts in 2024.
โ2023 will ultimately result in one of the lowest corporate finance fee pools in modern history,โ said Fabrizio Campelli, head of corporate banking and investment banking at Deutsche Bank.
Dealogic data shows that globally the $2,669 billion of deals closed so far this year is the lowest since 2005, while in the Europe, Middle East and Africa region, the $616 billion of deals that have been closed is the lowest since 2004. are the lowest since.
It is not just corporate dealmaking that is on the back foot. Banks are worried that tighter regulation will pressure profits, including tougher capital requirements known as the 'Basel endgame' that global regulators are set to impose from 2025.
And while consumer lending has boomed due to central bank policy moves, margins are now taking a backseat as interest rates peak and competition for deposits intensifies.
โOverall, the outlook for the next few years for banks is flat revenues,โ said Ronan OโKelly, partner and head of corporate and institutional banking for Europe at consultant Oliver Wyman.
job cuts
Banks have already turned to cost-cutting to deal with the recession, which has meant job losses in people-centric businesses.
The Organization for Economic Co-operation and Development said on Wednesday that global growth will slow from 2.9% this year to 2.7% in 2024 before picking up in 2025.
โCost (cutting) is the biggest single lever that banks can adopt to bring returns up to where they need to be,โ O'Kelly said.
Barclays is considering cutting 2,000 back-office jobs in addition to layoffs at its UK retail, corporate and investment bank, while rival Lloyds has put 2,500 jobs at risk, Reuters reports. Challenger Metro Bank said it could eliminate 1 in 5 jobs.
UBS and Citi are also expected to cut key headcount amid major restructuring.
However, labor unions say banks are exaggerating their problems after reporting some record profits this year.
Dominic Hook, Britain's Unite national officer, said he was fed up with their โpoverty pleaโ.
โThe short-term approach of staff reductions, offshoring and outsourcing services is failing everyone from local communities to small businesses,โ he said.
Bonus
The lack of activity means bonuses for this year are likely to be disappointing, although some banks may be more generous to retain talent in the event of a sharp uptick, including Goldman Sachs, which faces disappointing performance in 2023. Despite this, it is increasing.
โIn such relatively calm times, it is still important to have the best people in place who are ready to help the market rebound,โ said Vis Raghavan, CEO of EMEA and co-head of global investment banking, JPMorgan.
Morgan McKinley's London Employment Monitor found a 31% decline in financial services vacancies year-on-year in the third quarter, although around 52% of UK financial firms still plan to hire over the next six months.
One of those predicting a boom in business in 2024 is Stephen Ramboson, co-founder of Headhunter Wiki Advisory.
โActivity should increase over the next year, so if you don't pay your best people you risk losing them,โ Rambosan said.
To reward remaining bankers, Deutsche Bank CEO Christian Sewing has called on the EU to consider following Britain's lead by lifting the cap on variable compensation.
Such reforms would help banks better align staff remuneration with shareholder returns, said Ana Botรญn, the chair of Contraband, at an event this week.
instability
The wars in Ukraine and the Middle East and tensions between the West and China have led to caution in boardrooms, slowing investment and deal-making, while putting all but the most urgent refinancing on the back burner.
โIt's not a bad time to be a banker, but you can't keep everyone engaged and productive throughout the cycle,โ JPMorgan's Raghavan said.
โThat said, there is $6 trillion of debt that needs to be refinanced over the next two years and banks will do that work but that's just flow, and alpha is not in flow,โ he said in reference to โalpha.โ โ, How banks measure their money-making advantage over competitors.
Imminent elections in the United States, India and Britain next year are further increasing corporate inertia.
While London, Europe's leading finance center according to the Global Financial Centers Index, is part of a raft of reforms to boost its competitiveness after Brexit, many bankers said recent political turmoil has caused lasting damage.
Although uncertainty may hamper activity, it could also lead to market volatility that could boost trading teams, which could provide a welcome lift for banks in 2024.
โVolatility in the wider worldโฆcan benefit the (trading) business in terms of customer demand, risk aversion โ so it could be good for the business,โ said Oliver Wyman's O'Kelly.
And although some bankers expect 2024 to be tough, others sense an opportunity for European banks from the Basel endgame.
According to an analysis by Oliver Wyman, US banks could be forced to release $15โ20 billion in revenues that could be captured by rivals, with about half of this expected to be captured by other international banks. hopefully.
So what is the forecast for rainmakers?
Deutsche's Campelli said, โAlthough the market has been slow, it is not without promise. It's like a waterfall that you're pushing downโฆ When it comes up, it does so with a lot of energy.โ Does.โ
(Additional reporting by Anusha Sakoi and Caroline Cohn in London, Jesus Aguado in Madrid; Editing by Alexander Smith)
