The chart that says US banks could aggressively cut jobs, soon
If you're feeling optimistic about banking jobs and you missed the recent Apollo Academy document on US regional banks, you might want to avert your eyes. After holding on and holding on for a recovery in investment banking revenues, Apollo Global's chief economist Torsten Slok suggests banks' hopes have been dashed by SVB's collapse.
The chart below reflects the situation for US investment banking activity before and after SVB filed for bankruptcy on March 17th. If you work in equity capital markets or debt capital markets, it doesn't look good: high yield debt issuance has all but collapsed; IPOs were already anemic and are now non-existent; investment grade issuance is dramatically reduced. Only M&A bankers are thriving, and this possibly reflects longer lead times.
The feeble performance in US financing may, however, be mitigated once again by a stronger performance in fixed income sales and trading.
Speaking earlier this month at the Morgan Stanley European Financials Conference, Ted Pick co-president and head of Morgan Stanley's Institutional Securities Group, said "volatility is good until it's not" in banks' trading businesses and that "when there is a reasonable amount of volatility...our clients are trying to either monetize or navigate hedge this new paradigm."
On this basis, the chart below suggests that banks' fixed income businesses could have done very well in the past few weeks. All will become clear in mid-April when first quarter results are announced.
Either way, Apollo's charts also highlight that there's still plenty of reason for caution: as deposits are shunted into money market funds in pursuit of yield money is moving out of the banking system; bank funding costs are high, and higher interest rates mean unrealized losses on securities that banks hold on their balance sheets have ballooned to around $700bn. 2023 could be interesting.
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