Oh woe. Investment bank profits are evaporating after a disastrous contraction of trading revenues reflecting zero-to-negative interest rates, weak commodity prices and worries about China and other emerging markets. Not to mention the stagnant eurozone, the possibility of Brexit, increased capital requirements (which will rise further for banks that must ‘ringfence’ their trading operations) and the demoralising impact of regulatory moves to cap and force clawback of bonuses.
Across the Atlantic, Goldman Sachs, Morgan Stanley, Citi and Bank of America have felt the chill, as have Credit Suisse, UBS and Deutsche in Europe. Barclays, the last British contender in this arena, was expecting a stormy AGM this week as shareholders — stung by a slashed dividend, a pathetic share price and a weak first quarter — lose patience with the umpteenth restructuring under new-broom chief executive Jes Staley.
Pundits are now debating whether — eight years after the fall of Lehman — we’re witnessing the death rattle of an entire sector rather than a seasonal setback amplified by a regulatory crackdown. One thing’s certain: over the decades since investment banking activity began migrating from partnerships to public companies, it has been a nightmare of rollercoaster performance and recurrent scandal for its shareholder owners.
It has also, of course, made many bank employees fabulously rich — but has it been super-effective in its role of channelling the world’s surplus funds into capital for enterprise and finance for governments? Not really, or at least not noticeably more so than in the previous era that began with the birth of the Eurobond market in the 1960s. Some of us have long argued that the future lies in a return to the best of the past: a constellation of partner-owned niche financial firms, working collaboratively as deals dictate, advisers well separated from traders, clients well served in long-term relationships of trust, risks aligned with incentives, rules clear enough not to be gamed.
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