There are two rules for forecasting trends in the investment banking industry. First, look at what the banks are doing, rather than listening to what they are saying. And second, in any market, the intermediaries tend to know what’s going on earlier than their clients do. If you take these rules seriously, it’s beginning to look like we’re going to spend the second half of this year playing defense rather than offense.
Although senior bankers have, by and large, continued to talk up their prospects, there’s a distinct cooling in the labour market. According to Kevin Mahoney of Bay Street Partners (a headhunting firm), some banks are choosing to “push off ‘nonessential’ or ‘strategic’ hiring plans to the fourth quarter, if not 2023”.
Obviously, there’s a lot going on at the moment, so it’s not wholly inevitable that postponed recruitment will turn into cancelled recruitment, and then to layoffs. But this is the way that market cycles begin, and the real fear has to be that the last quarter’s equity market weakness is not all about war and uncertainty, but has more to do with expectations of recession and rising interest rates.
As we have noted a few times this year, the industry’s revenues have become very dependent on private equity funds. Indeed, when top bankers give optimistic speeches and interviews, their key data point tends to be the continued strong inflows into private equity, and the presumption that putting this money to work is going to continue to generate fees. In an environment of rising rates and falling expectations, though, financial sponsors might choose to “wait and see” for a while, with particularly bad consequences for ECM franchises.
Which means that if you’re in equity capital markets, now is the time to start thinking about career survival strategies. It’s probably too late to jump ship to a well-capitalised national champion with a long-term investment plan, but if you happen to be in possession of an offer, the trade-off between cash, prestige and job security should definitely be on your mind.
Otherwise, the key thing to remember is that, in order of vulnerability, the people who get fired in a revenue drought are rainmakers who aren’t making rain, victims of office politics and juniors without strong relationships. The safest position to be in is if you are still bringing in revenue. If you can’t manage that, you need a powerful sponsor at senior level who’s prepared to treat you as an investment.
Once upon a time, there was some safety in being so small and unimportant that nobody could be bothered firing you because it wouldn’t save much. As a result of two years of significant pay rises, there are pretty few bankers in that position though, including even junior associates. Paradoxically, expensive MDs hired early in the year are much…
Read More: The 2022 survival guide for capital markets bankers
