Two disturbing reports: huge investment banking job cuts; big investment banking pay reductions
Investment banking analysts do not have pleasant things to say about the industry they cover.
On one hand, Bloomberg has seen a report by Meredith Whitney in which Meredith predicts 80,000 job cuts at 'securities firms around the world' over the next 18 months.
On the other, JPMorgan analyst Kian Abouhossein is back with predictions that pay will plummet. He thinks compensation per head will fall 32% between 2009 and 2011 as banks seek to maintain margins.
Whitney's projections are based on what she describes as the 'structural decline' of the key product drivers of Wall Street's revenues and profits over the past decade.
Abouhossein is also pessimistic on revenues. He foresees a 22% drop in fixed income revenues this year, and a further 4% decline between 2011 and 2012. Within this, rates revenues are expected to diminish 25% y-o-y in 2010; credit's expected to fall 17%; FX is expected to fall 22%.
In a separate report, also out today, Morgan Stanley analyst Huw Van Steenis says banks are moving towards a 'new normal' in which average growth is likely to be less than half the rate in prior years.
There is, however, one single area in which growth may be forthcoming in the medium term: equity derivatives. Although revenues in flow equity derivatives are being squeezed, Abouhossein is of the belief that Delta One, strategic equity transactions, emerging markets ED, and ETFs all have growth potential still.