The outlook for the investment banking industry is mixed. The positive: Worldwide merger and acquisition deal values reached nearly $4.1 trillion during full year 2018, according to the Institute for Mergers, Acquisitions and Alliances, a 15 percent increase from 2014 levels and the strongest annual period for worldwide deal making since 2007 (at the height of the financial crisis). Corporate earnings have been robust in recent years, and U.S. companies are still sitting on a mountain of cash, which could be readily deployed in the next round of acquisitions. The negative: The industry is not generating as much revenue as it used to, and it is facing increasing competition for business and changing financial trends. “The investment banking industry as a whole has to deal with the fact that many companies are delaying public offerings or opting for direct listings that de-emphasize the role of banks,” according to CNN Business. “Additionally, trading since the financial crisis has not been a reliable source of income. Even industry leaders are being forced to adjust. Goldman Sachs, for example, is undergoing a multi-year effort to build out new business lines that could prop up faltering trading returns.”
Since it started in late 2019, the coronavirus pandemic has affected all industries in varying degrees. Like many businesses, investment banking companies responded to the lockdowns due to social distancing requirements by working remotely. Unlike many industries, however, the investment banking industry has survived relatively well during the pandemic. According to a December 2020 article in Reuters, "deals have boomed across the board for Wall Street during the pandemic, as corporate financing remained cheap and plentiful thanks to support from the Federal Reserve." In addition, initial public offerings worldwide were up by 25 percent in 2020 (totaling $220 billion) compared to 2019, and mergers and acquisitions globally had dropped by 7 percent in 2020 (to $3.4 trillion) over 2019, representing their fourth strongest year of the past decade.
As of January 2021, the U.S. investment banking and securities dealing industry consisted of 17,038 businesses employment 165,352 people. The research group IBISWorld predicts that there will be continued improvement in this industry through 2026, although growth will be at a slower rate than it had been in the 2016 through 2021 time frame. As the pandemic becomes contained, the S&P is expected to increase, which will lead to a rise in initial public offering underwriting activity. Rising interest rates on loans will also be of benefit to investment banking and securities operators.
Some of the best employment opportunities in investment banking can be found, not on Wall Street, but in other financial centers around the country and world. Some opportunities that stand out are in product management, marketing, and restructuring troubled companies. Some specialty areas of banking are hard to break into, and they require specialized skills and in some cases prior industry experience. In debt restructuring, which involves helping over-leveraged companies shed their debt load, a legal background or some expertise with corporate bankruptcy filings is helpful. Debt restructuring is usually the province of boutique firms such as Evercore, Rothschild, or Greenhill. The biggest players in this field are Blackstone, Lazard, and Houlihan Lokey.
Investment banks are no longer the dream job destination for many finance majors due to declining compensation packages and perceptions by young people that these employers are not as employee friendly as those in other industries. The Boston Consulting Group reports that “social-media and technology companies are attracting Millennials by appealing to their desire for global experiences, high levels of responsibility, rapid advancement, and an attractive work-life balance. Overall, investment banks are losing the human resources battle.” Investment banks are also facing strong competition for employees from private equity firms, hedge funds, and venture capital firms. Other young analysts are leaving to pursue advanced degrees in finance or business administration. Some investment banks have realized that they need to create more worker-friendly environments in order to attract and retain top talent (especially in areas that are not high-paying). “Investment banking is becoming more inclined to the thought that ‘employee satisfaction is the key to customer delight,’" according to Quantzig, a data analytics firm. “Especially after the emergence of platforms like Glassdoor and social media, where the negative work experiences can be made public, the players in investment banking have realized that their reputation is at stake here.”
The diversity of occupations in investment banking makes it difficult to make projections about employment opportunities that ring true across the industry as a whole. Investment banking, collectively, is an umbrella for many different occupations—underwriting, distributing, and trading securities, providing financial advice, and managing client wealth. But the U.S. Department of Labor (DOL) does provide employment outlook information that will be of some use to those wishing to enter the field.
Employment of securities, commodities, and financial services sales agents (including investment bankers and investment banking sales agents and traders) is expected to grow by 6 percent from 2016 to 2026, according to the DOL, or about as fast as the average for all careers. The U.S. remains an international financial hub, and its employment growth is fueled by the economic growth of other countries. However, the DOL reports that “continuing consolidation in the financial services industry is projected to slow employment growth for these workers over the next decade. In addition, automated trading systems have reduced demand for securities traders. Financial regulation, including restrictions on proprietary trading, have created a shift of employment among traders from investment banks to hedge funds; however, this shift should not affect overall employment growth for the occupation.” Competition will remain strong for these high-paying, often prestigious jobs. Those with a master’s degree in business administration or finance, the chartered financial analyst credential, and a strong grade-point average (for new graduates) will have the best job prospects.
Job opportunities for financial analysts (buy-side analysts, sell-side analysts, portfolio managers, fund managers, ratings analysts, and risk analysts) are expected to grow by 11 percent from 2016 to 2026, according to the DOL, or faster than the average for all careers. Despite this prediction, there is strong competition for jobs in this field because these careers pay well and offer a path to occupations with even more prestige and higher earnings. Again, those who are certified or who have advanced degrees will have the best job prospects.
Employment for financial managers (treasurers, chief financial officers, risk managers, etc.) is expected to grow by 19 percent from 2016 to 2026, according to the DOL, or much faster than the average for all careers.
Information security analysts will enjoy employment growth of 28 percent during this same time span. Demand will be strong as the banking industry continues to strengthen its IT security infrastructure as a result of cyberattacks. Banks are increasing their cybersecurity budgets and seeking to hire more information security analysts, chief risk officers (who are responsible for ensuring data security as well as managing many other areas of risk), and ethical hackers (also known as white-hat hackers). Despite the strong demand for information security analysts, there’s a shortage of workers in the field. The computer security association (ISC)² estimates that there is a shortage of 3 million cybersecurity professionals worldwide.
The growing use of artificial intelligence (AI), distributed ledger and blockchain, data analytics, and cloud computing technology will create strong demand for tech workers who are both familiar with these technologies and the investment banking industry. There is currently a shortage of technology workers with this expertise. The staffing firm Robert Half recently listed AI, cloud computing, and data analytics and database management software (SQL, VBA) as in-demand technology skills in its Accounting and Finance Salary Guide 2019. “The largest banks are automating work anywhere they can, especially routine work like cutting and pasting data from one app to another," according to American Banker. “Use of AI and robotics will only grow provided banking regulators become more open-minded about them. This will dramatically change banking jobs and the skills required to do them. People will be needed to design and train bots and AI engines, to test and oversee them, and to manage the employees who do those jobs.”