If you work in financial services recruitment and are a glass half full type person, this week should have confirmed your bias: one after another, major banks have been standing up and saying that in terms of their investment banking operations at least (M&A, capital markets, sales and trading), things are going pretty well.
Speaking yesterday at Bernstein's annual strategic decisions conference, Goldman Sachs COO John Waldron said that Goldman is on track to meet all the KPIs announced at its investor day in January and that it therefore has no intention of cutting costs beyond the $1.3bn it announced before the pandemic hit. We already knew that Goldman had an excellent first quarter, with net earnings in its markets business up 89% and Waldron indicated yesterday that Goldman people have been exceptionally busy. Goldman's engagement with clients across the investment bank is up 30%, and there was a 90% year-over-year increase in readership of research notes between February and April.
It's not just Goldman. Jamie Dimon appeared at Deutsche Bank's Global Financial Services Conference on Tuesday and said that JPMorgan's strong first quarter in sales and trading persisted into April and May. JPM's trading results in Q2 are just as strong as in Q1, said Dimon. This too sounds promising given that trading revenues at JPMorgan were up 32% year-on-year in the first quarter.
Deutsche Bank has also been spreading the good news. CEO Christian Sewing said the bank continued to see positive momentum in fixed income sales and trading revenues in April and May. This too came after trading revenues at Deutsche rose by 13% year on year in the first quarter.
Waldron was even bullish about M&A revenues after a slower start to the year for dealmaking. "Strategic activity" is likely as we exit the crisis, said Waldron yesterday, adding that companies are likely to "play more offense" after raising additional capital. Dimon noted that after a record amount of capital raising in March and April, many clients now have enough capital to last them through to 2022 and 2023. While this might be bad for debt capital markets businesses which could now see a fallow few years, it could be good news for dealmakers if clients use the capital to make strategic acquisitions as the outlook improves.
Of course, none of this means that we're out of the woods yet. Banks are still cutting costs: Deutsche Bank has resumed its layoffs and HSBC (which has a hiring freeze) is thinking of ramping-up its cuts. As Dimon pointed out on Tuesday, much now depends on what happens next with the virus and the economy: if unemployment is still at 20% in major economies by the end of the year, banks will need to make another big round of credit writedowns and all bets will be off.
If (if) the virus and economies normalize, however, the second quarter could prove a turning point. If things remain strong for a few more months, banks may indeed put their heads above the parapet and start tentatively implementing hiring plans later this summer. Despite everything, 2020 is turning out to be an ok year for investment banks.
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