If you're looking for a new investment banking job in the second half of this year, you may need to look a little harder than before. Both headhunters and bankers who've been putting themselves out there say the job market is softening as revenues fail to come through.
This is particularly noticeable in areas like equity capital markets and leveraged finance, where revenues this year were expected to be strong but have failed to live up to expectations. Leveraged finance issuance in May 2022 was at its lowest level since the chaos of March 2020 as war, rising interest rates and pervasive angst took their toll.
Speaking off the record, one US-based director in leveraged finance origination, says he's seen jobs in the area being pulled as the year has progressed. "I know a few banks had planned to add senior folks this year, but they've pulled the roles. The market is quiet."
2021 was an epic year for European leveraged loan issuance, with $0.15 trillion of loans issued according to the S&P, more than double the amount of 2020. This year, the European market has wilted under fears that borrowing costs will rise. It doesn't help that banks have been struggling to offload nearly $4bn of debt associated with the $9bn purchase of Morrisons Supermarkets at the end of 2021. Nor does it help that the European Central Bank (ECB) has been inflicting additional capital charges on banks like Deutsche over concerns that loans could sour in a rising rate environ,ent. In a note out today, Jim Reid Deutsche's head of thematic research, predicts the next recession will start in late 2023 and that after that, "defaults will start to structurally move higher again in contrast to the past two decades." In 2025, Reid predicts that defaults on high yield debt in the US will peak at 10% and that the "ultra low default" landscape will thereby come to a sudden end.
Some banks are bucking the trend. Credit Suisse CEO Thomas Gottstein said in April that the bank would be adding talent across leveraged finance, M&A and equity capital markets this year. David Miller, the head of investment banking and capital markets at Credit Suisse said today that the bank is "back" and pointed to its various activities in the US leveraged finance market this year, including the buyout of McAfee Corp, Apollo's buyout of Novolex, and the fact that it's leading a $3.35bn buyout loan for software company CDK Global Inc.
While Credit Suisse may be pushing ahead in the US, however, headhunters confirmed that hiring activity is waning for leveraged finance in Europe. "Only essential hires are getting signed-off," said one. "The fee drop is affecting sentiment very strongly and it takes a strong argument to get anyone hired. They'll make replacement hires but preferably at a lower cost."
With headcount constrained, the origination director said existing staff are being forced to work harder to cover gaps. "If we're in a similar situation in September, jobs will be cut," he said. The headhunter agreed: "This is a prelude to cuts in Q3."
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