Investment banking is officially a low growth industry
If you're hanging out, wondering where the growth in investment banking industry revenues went and waiting for it to come back, you might not want to look too long at the new report from consulting firm BCG.
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BCG says corporate and investment banking activities have become a low growth endeavou. And it thinks they will remain that way.
In the years since 2010, BCG says global GDP has increased 55%. However, revenues in corporate and investment banks (CIBs) have increased only 31% over the same period. Within CIBs, the highest growth has been in transaction banking and corporate lending. The lowest has been in fixed income currencies and commodities (FICC), where compound annual revenue growth during the period has been...-0.3%.
It doesn't look great. Unfortunately, BCG thinks the "fundamental trend" will persist: banking revenues will continue to lag the market for the "foreseeable future."
For anyone consuming the diet of optimism from senior bankers heralding a return of sponsors deals and bulging pipelines, this might come as a surprise. But BCG says some bankers have greater reason to be buoyant than others.
If you work for one of the top three players in your area, BCG says life is fine. If you work for the next tier down, you are being squeezed. Hard.
The problem is that revenues are migrating away from banks and into alternative players. Boutiques like Centerview are eating the lunches of investment banking divisions. Private credit funds like Ares are eating banks' lending revenues. And electronic market making firms like Citadel Securities and Jane Street are eating banks' sales and trading revenues.
While revenues are being squeezed, costs are rising. BCG says the cost income ratio (CIR) has risen in recent years and the return on equity has fallen. Regulatory and technology spending are to blame.
None of this bodes well for jobs in the investment banking industry, or for pay. But even in corporate and investment banks, BCG says there are havens. You're safest at the biggest players in each sector. You should also be safest in investment banking teams focused on the energy transition, in teams propagating the use of large language models (LLMs), or technology teams looking at things like cybersecurity.
If you work in equities sales and trading for a big bank, the chart below finally suggests you're also best off in prime broking. However, if you work in equities sales and trading for a marginal player with a low market share, you should probably prepare for Citadel Securities' putative white label offering to take your job.
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