If you don't work in tech and you're not a quant, you can be forgiven for feeling twitchy about your future in finance. After all, STEM recruitment is where it's at: 70% of Goldman's equities trading hires were engineers last year. Analysts at Morgan Stanley and Oliver Wyman predict that spending on quants and technologists will rise to 25% of front office compensation in future, up from 5% today; in the back office, they think quant and tech spend will rise to 60% of the total wage bill, up from around 35% today. Non-tech professionals will lose out accordingly.
As we've noted before, though, there's still a safe option if you're a banker with minimal coding and quantitative abilities: relationships. Morgan Stanley and Oliver Wyman's report helpfully explains precisely how to position yourself as the sort of "relationship banker" who will be imperative in the new world.
The report says that "highly skilled relationship bankers" will be a "key" investment for banks in the future. However, not all relationships will be equal. The most sought-after relationship bankers are going to be those who are pally with corporate clients, not institutional investors.
The chart below explains why. Between now and 2020, Morgan Stanley and Oliver Wyman think fee pools for institutional clients (asset managers, hedge funds, other banks, pension funds) will fall across macro, credit, and equities products. By comparison, the outlook for corporate clients is far more benign: in credit and equities corporate client revenues will be stable; in macro they're expected to rise.
Outlook for client fee-pools, 2017-2020
While institutional client revenues wither in the face of electronic trading, MiFID II, passive trading and quant trading, corporate client revenues are benefiting from all sorts of tailwinds. Driven by rising interest rates, by stronger demand for financing (eg. through debt capital markets), increased transactional activity (eg. payments, FX and liquidity management), by lower loan losses and by stronger corporate cash flows, Morgan Stanley and Oliver Wyman predict 4% compound annual revenue growth in the medium term - and more still at banks with "dominant market share".
If you're going to reinvent yourself as a corporate relationship god, now is therefore the right time to do it. Banks like Goldman Sachs are already alert to the corporate revenue opportunity and are sucking up corporate salespeople alongside their influx of STEM talent.
Share of wholesale bank revenues - corporate clients vs. institutional clients
Some banks are most exposed to corporates than others, however. And some only have "CFO-up" style corporate revenues from products delivered directly to the C-suite, like M&A and equity capital markets, without having a commensurate, "CFO-down," offering made through the treasury function, like corporate payments, FX, liquidity management, trade finance. As the chart below shows, Goldman Sachs is a prime example of a bank with a heavy skew towards institutional clients. J.P. Morgan and HSBC are the equivalent examples of banks with a heavy skew towards corporates.
If you want to position yourself in an inviolable spot for the next five years, therefore, Morgan Stanley and Oliver Wyman suggest you might want to work with corporate clients at the likes of J.P.M, HSBC, Bank of America or Citi. By comparison, institutional client specialists at the likes of Goldman Sachs, UBS and Credit Suisse in particular stand to be squeezed. These are the people who might want to start learning how to code, before it's too late.
Wholesale revenues by division and client type
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